S&P Global Ratings Forecasts that Indian Currency, Inflation may not Face Significant Pressure from Ongoing Geopolitical Situation

New Delhi, June 24: S&P Global Ratings has forecasted that Indian currency and inflation will not face significant pressure from ongoing geopolitical situation.

Vishrut Rana, an Economist at S&P Global Ratings, highlighted that despite some recent volatility, Brent crude oil prices are still below last year’s levels. A year ago, Brent crude traded around USD 85 per barrel. Currently, prices have seen a further dip, particularly after the announcement of a potential ceasefire between Israel and Iran, which brought oil prices down to approximately USD 69 per barrel.

“This will help contain both current account outflows and domestic energy price pressures. While energy prices may rise moderately, the path of food prices will have a higher impact on inflation. Overall, we do not expect significant pressure on the Indian rupee or inflation,” said Rana.

Rupee Shows Strength in Morning Trade

Reflecting the positive impact of easing global oil prices and developments regarding the ceasefire, the Indian rupee opened stronger on Tuesday at ₹86.13 against the US dollar. This marks a 65-paise appreciation compared to its closing rate on Monday.

India’s economy is notably reliant on energy imports, with over 85% of its crude oil and nearly half of its natural gas being sourced from abroad. A substantial portion of these imports originates from the Middle East, making the region’s stability a crucial factor for India’s trade balance and its inflation outlook.

Inflation and Currency Outlook for 2025

S&P Global Ratings has outlined its projections for India’s key economic indicators:

• Inflation: S&P anticipates India’s inflation to average 4% in 2025, a decrease from 4.6% in 2024.
• Currency (Rupee): The agency forecasts a slight weakening of the rupee, expecting it to reach ₹87.5 per US dollar by the end of 2025, compared to ₹86.6 at the end of 2024.

While geopolitical tensions might lead to temporary volatility in the rupee due to increased global risk aversion, S&P believes that current energy price levels would act as a protective cushion against major shocks.

Global Conflict Impact on Growth Still Limited

Regarding broader economic implications, Vishrut Rana noted that the current conflict’s impact on global growth remains modest at this juncture. However, he cautioned that prolonged geopolitical tensions could pose a downside risk to overall economic momentum.

In a separate development, S&P Global Ratings has revised India’s GDP growth forecast for the current fiscal year (FY26) upwards to 6.5%. This optimistic revision is driven by expectations of a normal monsoon season, continued lower crude oil prices, and the potential for monetary policy support. India’s strong domestic demand resilience is also seen as a key factor in mitigating potential economic slowdowns.

Bottom Line

While global geopolitical developments will always be on the radar, S&P Global Ratings’ assessment suggests that India’s economy is relatively well-positioned to manage potential fallout, thanks to favourable energy price trends and robust domestic fundamentals. Today’s rupee appreciation further underscores this resilience.

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