India is Decreasing the Share of US Dollar in Its Treasury Holdings

The US dollar's share in India's treasury holdings had been steadily increasing till mid-2024. However, since the US imposed tariffs on India, India has been steadily reducing the share of the US dollar in its treasury holdings and increasing the share of precious metals instead in its holdings. The share of the US dollar in India's treasury holdings is now at its lowest level in the last six years. It was at $241 billion in October 2024, which fell to $190 billion in October 2025. By April 2026, the US dollar’s share in Indian treasury further fell to $181 billion.

This trend has gained momentum not only in India but globally. After the US imposed tariffs on its trade partners, countries around the world are seeking to reduce their dependence on the dollar. While it is true that there is currently no alternative to the US dollar, the world is looking for alternatives. This is why the share of local currencies in global bilateral trade is gradually increasing.

Restoration of Commercial LPG Supply is a Good News for Indian Economy

The government has resumed the supply of commercial LPG. This is positive news for the economy as well as the energy sector. Since the conflict between the US and Iran, and blockade of the Hormuz had completely shattered the energy supply chains for India. Many energy-importing economies, including India were hit hard as the availability and prices of gas as well as petroleum products had become to volatile.

With a deal between the US and Iran, maritime traffic in the Strait of Hormuz is now normalizing benefiting India to huge extent. This is expected to result in gas supplies gradually restoring to the normalcy. So this decision is not only the first step toward the normalization of the energy market will improve the availability of essential fuel for industries, commercial establishments, and the service sector, thereby supporting production and business activities.

It will take time before the prices of commercial gas starts easing if global supply conditions improves. So it will be premature commenting on significnat drop in the prices of the gas. Because the war between the US and Iran has resulted into huge structual challeneges with destruction and damages to the capacity of gas plants in the Middle East. So the capacity constraints and long-term supply contracts already locked in will continues to exert pressure on the prices. So, the gas supply will improve gradually.

Where is the Indian Rupee Moving?

Many are wondering, where is the Indian rupee moving?

The Indian rupee depreciated about 9% in the last one year. But post the US-Iran peace deal announcement, it has recovered about 1.5% in a matter of a few days!

So many are wondering, why has the rupee recovered?

Considering the inflation differential between economies, historical norms, Nominal Effective Exchange Rate (NEER), and Real Effectively Exchange Rate (REER), the Indian rupee is highly undervalued by 6-7% relative to its current market value.

REER is about 88 and NEER is 91 in the month of May 2026. These two values clearly indicate that the rupee is undervalued. Any value below 100 is considered as undervalued.

This undervaluation is not being caused by macroeconomic fundamentals. But it stems from the risk-off sentiments and equity market outflows. This is driving the rupee’s nominal spot rate down.

Should RBI Allow the State Bank's Plan to Securitize its Home Loan Portfolio?

Is history poised to repeat itself?

SBI's plan to securitise a portion of its home loan portfolio suggests exactly that, evoking memories of the 2008 global financial crisis.

State Bank of India (SBI) is the largest bank in India. Its practices and actions in the market go on to impact the entire Indian banking sector.

State Bank is planning to securitise a portion of its ₹10 trillion home loan portfolio. It must be noted that deposits are slowing in India, and Indian banks are struggling to mobilise enough deposits to match the demand for loans due to low interest rates. SBI is not an exception to it. So SBI, with the purpose of diversifying its funding sources, is considering raising funds by securitising its home loan portfolio by issuing mortgage-backed securities to institutional investors. This plan aims to boost liquidity and expand its lending capacity.

This move of SBI revives the memories of the 2008 global financial crisis originating in the USA. American banks aggressively securitised subprime mortgage contracts and sold them to investors worldwide. This became one of the most profitable businesses, which led to excessive risk-taking, weak underwriting standards and complex financial products. Once the supply overpowered the demand, it resulted in widespread defaults across the US, which eventually led to the collapse of major financial institutions such as Lehman Brothers, Washington Mutual and AIG. Then a severe global recession followed.

How is the US-Iran Peace Deal Helping India?

Since the US-Iran Peace deal has been announced, the fall of Indian Rupee has not only stopped but reversed. In the last 2 weeks, Indian Rupee has appreciated by ₹1.62 rupees against the US dollar which is about 1.7%. However, in the last one year, the Indian rupee has depreciated by about 9% against the US dollar.

This reversal has happened just because of one single factor; the US-Iran Peace deal which has brought down the Brent crude oil below $80/barrel.

So the value of the rupee is directly linked to domestic and global macro-economic factors. Therefore, anyone claiming that the exchange rate of the Indian Rupee against the US dollar touching to 100 is just a number and should not be cause of concern, is either sentimental or ignoring the hard facts.

Everyone knows that higher the exchange rate, the sooner the forex exchange will dry. This will lead to multiple problems for the economy.

Will RBI have to increase interest rates in India?

The Bank of Japan is set to increase interest rates to the highest level since 1995. The Federal Reserve of the US is also contemplating the idea of increasing rates, as it is difficult for the Fed to tame inflation below 2%. The European Central Bank has already increased the interest rate by 25 basis points from 2% to 2.25%. Other developed economies are expected to follow sooner or later.

India is already in a difficult position with spiralling inflation due to increased fuel prices, falling rupee, widening current account deficit and falling forex reserve. Monsoon is also expected to remain weaker this year. A weak monsoon will negatively affect the hydropower generation as well as farm earnings, adding to the problems for India.

Despite a possible US-Iran peace deal this week, the uncertainties still loom larger over the opening of the Strait of Hormuz. Rising interest rates in Japan, the US, the EU and other developed economies are a cause of concern for India. This will lead to flight of capital from Indian markets, resulting in increased pressure on the Indian rupee as well as the equity market in India.

Impact of the Austerity Appeal by the Indian Prime Minister on the Indian Economy

The rupee has witnessed a free fall of about 6% in the last five months. Both the WPI and CPI are showing an upward trend! Gold and fuel prices are expected to remain high for import-dependent India. It simply means that India is forced to import inflation. If India continues to behave as earlier, India is on the verge of an era of high inflation! All this is happening not due to internal economic problems but uncertainties about the global fuel prices, Hormuz blockade and possible economic slowdown in the world economy, along with the fear relating to Ebola!

In this hour of economic challenge, India needs some necessary shock absorbers. The seven austerity appeals by Prime Minister Narendra Modi, announced amid the West Asia conflict, are expected to act as a necessary shock absorber for the Indian economy but only if citizens treat it as a voluntary fiscal pact, not a moral lecture. The critics are calling the Prime Minister’s appeal for austerity an indicator of possible economic slowdown. But it must be clear that it's not a crisis time; so this isn’t panic. Rather, it is a strategic restraint.

A Ceasefire will not Fix the Fuel Bill

The way the Iran-US war unfolded and caused damage to oil assets in the Middle East, it is clear that even if Iran and the United States announce and implement a permanent ceasefire immediately, the global oil market will not recover for months. For natural gas, the disruption is measured in years, not months. This is not pessimism. This is what the data silently speaks.

The conflict has done something that no geopolitical shock since the 1973 Arab oil embargo has managed to do. It has simultaneously disrupted production, transit, and insurance across the same chokepoint. Brent crude, which was trading near $70 per barrel before hostilities began on February 28, 2026, crossed $113 per barrel, a 60% spike in under four weeks. This is not a paper price. Physical oil supply from a region accounting for 20% of global daily output has been interrupted simultaneously at the source, in transit, and at the point of export.

At present, the global energy market is facing not one crisis but two. Most importantly, these two operate on entirely different timescales. On crude oil, the core structural problem is the Strait of Hormuz. This is the world's most critical energy chokepoint, and unlike the Russia-Ukraine disruption of 2022, where Russian oil was rerouted to Asia through alternative logistics, the Strait has no viable workaround at scale.

The RBI's 2026 Forex Overhaul: Reining in Volatility and Risk

The RBI’s decision to cap banks’ net open rupee positions (NOP-INR) at 100 million dollars per day and force the unwinding of large arbitrage-linked forex market trades has a mixed impact on the Indian financial system and the broader economy. This decision of the RBI aims to stabilise the falling rupee and reduce the speculative froth. However, it also squeezes bank profits, tightens forex market liquidity, and adds some short-term volatility for the banking and financial system.

On the Financial System

This massive unwinding has had a visible impact on the rupee. It gained about 2 per cent over seven trading sessions, recovering from recent record lows near 95 per dollar to around the 92.50–93 range. The selling of long dollar positions by banks has translated into a steady flow of dollars into the Indian forex market, providing short-term support to the rupee.

India's Economic Outlook 2026: Trade Growth vs. Global Energy Shocks

Iran and the United States have likely reached a temporary peace agreement. However, it remains uncertain just how temporary or permanent this agreement will prove to be. Nevertheless, it can be viewed as a temporarily positive development for the world economy!

Even if this conflict permanently ends right now, it would continue to have detrimental repercussions for India for a considerable period. This conflict has negatively impacted the oil fields of all nations across the Middle East. Some oil fields have been completely or partially destroyed, while entire inland transportation networks have collapsed. Restoring the entire system and returning to normalcy is expected to take months if not years.

It will take several months for elevated oil prices to revert to their previous levels (however, it depends on oil producing nations). This will not be possible until the oil fields of all Middle Eastern nations resume operating at their full capacity.