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Crude oil prices remain the biggest wildcard for India's economic outlook, even as a sharp rise in foreign currency non-resident (FCNR) deposits has provided a major liquidity boost to the banking system, Anindya Banerjee, Head of Currency and Commodity Research at Kotak Securities, told ANI in an exclusive interview on Friday.
Banerjee said the surge in FCNR deposits to around USD 127 billion, much higher than market expectations, has strengthened India's financial position. "This infuses close to 13 to 14 lakh crores into the system... That's a massive liquidity injection which has happened in the system, which will support the economic activity," he said. He also backed the Reserve Bank of India's decision to close the FCNR deposit window early after the inflows crossed the USD 100 billion threshold. "Once the threshold was crossed, USD 100 billion, the cost started to outweigh the benefits, and the RBI immediately put a premature end to it," Banerjee said. On oil prices, Banerjee said the focus in global energy markets has shifted from crude oil to refined products, particularly diesel, which plays a major role in transportation and industrial activity. He said higher diesel prices can act as an inflationary burden on households and the wider economy. While supply-side measures and releases from strategic reserves have helped keep Brent crude below USD 100 per barrel for now, Banerjee warned that prolonged disruptions could push prices significantly higher. "If the current situation persists into the end of this year, disruption in oil flows from Hormuz and as well as the kind of attacks which Ukraine is doing on the Russian energy infrastructure, I think then there is a high possibility that Brent crude might inch towards USD 110, USD 115 by the end of this year," he said. On the rupee, Banerjee said USD/INR is likely to face strong resistance around 96-97, supported by the RBI's ability to intervene in the foreign exchange market. He ruled out the possibility of a sharp rupee depreciation under normal circumstances, saying the currency could cross the 100-mark only if crude oil prices rise substantially. "To cross 100, I think oil has to be the sole thing at 130, 140 plusyes, then the risk increases," he said. On the downside, he identified 94 as an important support level for the rupee. If weaker US economic data reduces expectations of further rate hikes by the US Federal Reserve, the rupee could strengthen beyond this level, supported by steady foreign portfolio investment flows. Discussing India's domestic economy, Banerjee also referred to the 7.8 per cent GDP growth recorded in Q1 FY27 and inflation expectations for the third quarter. He defended the credibility of official economic data and praised the government's role in absorbing part of the impact of higher fuel prices along with oil marketing companies. "The government and the OMCs shared the lion's share of the burden... That's a very smart move from the government because globally we are not seeing these kinds of cushions," he said. On India's purchase of Russian crude oil and comments from abroad, Banerjee said India should continue to prioritise its own economic interests. "I think we should stop giving too much importance to what Donald Trump says because he himself doesn't give much importance... Look at our own interest and that remains at the top of our list," he said. Looking ahead, Banerjee said the trajectory of crude oil prices would remain critical for India's currency, inflation and fiscal outlook. "Assuming oil stays under 100105 on the Brent, then we could see the Indian rupee come towards 9392 levels by March," he said. He added that if crude remains under control, concerns over the fiscal deficit could ease and inflation may gradually moderate in the next financial year. (ANI)
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