Pound to Indian Rupee Advances on Disappointing growth forecast

January 25, 2015 - Written by Minesh Chaudhari

STORY LINK Pound to Indian Rupee Advances on Disappointing growth forecast

The Pound made gains against the Indian Rupee after a growth forecast showed that the Indian economy would not grow as much as economists had previously expected. The report, which polled 19 analysts, showed that the Indian economy would pick up strength at the start of the year but by a smaller level than forecast.

Falling oil prices and improved credit conditions are expected to increase consumer consumption and the implementation of new reforms by the Modi government, which has improved business in the nation and will prove to be a key factor in maintaining momentum.

The analysts were forecasting that Asia’s third largest economy would grow by 6.2% over the course of the next fiscal year, a slight drop from the forecast made in October, which predicted growth of 6.4%. Despite that, growth has exceeded the 6% level since 2011/12.

Hopes of a pickup in India’s growth rate came partly from last week's interest rate cut by the Reserve Bank of India, which took economists by surprise, and offered a clear signal that it would ease policy through 2015 if inflation continues to fall and the government keeps its finances healthy. Median forecasts showed the economy would expand by 5.8% this quarter and by 6.0% in the next.

‘A looser policy should help growth accelerate over the next 18 months or so. On top of this, there is the boon from the drop in oil prices and what that means for spending,’ said Shilan Shah, India economist at Capital Economics.

The Pound meanwhile found support from data, which showed that retail sales increased unexpectedly in December. Economists had been expecting sales to decline following the strong surge recorded in November because of the Black Friday sales.

The report released by the Office for National Statistics (ONS) showed that sales rose by 0.4% on a month on month basis, on an annual basis retail sales increased by 4.3%, beating economist forecasts for a figure of 3%.

December’s sales were boosted by falling oil prices, which translated, into cheaper prices at the petrol pumps. Supermarket sales also increased as the ongoing price war sent prices falling. With inflation falling, consumers are likely to further increase their spending over the course of January.

Supermarket sales volumes grew 1.3% in December compared with November and by 1.1% year on year. Non-food stores fell 0.6% on the month with textile, clothing and footwear stores declining by 1.1%.

‘With real incomes set to rise due to rising wage growth and falling inflation, tax cuts coming though and employment continuing to make strong gains, 2015 in general should see consumer spending perform well,’ said an economist from ING Bank.

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