India Budget Forecast to Hold GBP INR Exchange Rate Steady, GBP AUD Awaits RBA Decision

March 2, 2015 - Written by John Cameron

STORY LINK India Budget Forecast to Hold GBP INR Exchange Rate Steady, GBP AUD Awaits RBA Decision

The first full budget from India’s new BJP-led government was delivered on Saturday and it contained more than a few surprises.

India Announces Universal Benefits

India’s Prime Minister Narendra Modi was swept to power on a wave of optimism last year with commentators hailing him as a pro-business saviour of India’s inefficient economy. These same commentators may therefore have been surprised that the stand-out announcement from the weekend budget statement, delivered by Finance Minister Arun Jaitley, was the introduction of a universal, and extremely costly, benefits system aimed at dragging the subcontinental superpower’s endless millions of poverty-stricken citizens out of their own personal economic malaise. Balancing a national budget is ultimately a zero sum game – business leaders fear that the cost of this massive welfare programme will be a loss of focus on the structural reforms which Modi has previously promised.

Indian Corporation Tax Cut

On the positive side for Indian business and for the Indian Rupee (currency:INR) alike, the budget statement also brought the announcement of an unprecedented cut in the level of corporation tax levied on the nation’s firms. However, the introduction of a Goods and Services Tax (GST) is likely to dampen demand from Indian consumers, having the opposite effect on company profits. On balance, analysts viewed this budget as a neutral one for the Rupee, meaning that most forecast that the Pound Sterling Indian Rupee exchange rate will remain in the lower part of the 95.00s, where it ended last week, during the short term.

Pound Sterling Aussie Exchange Rate Depends on RBA

Elsewhere, the next major risk event of note in the currency markets comes overnight tonight with the Reserve Bank of Australia’s monetary policy announcement. The RBA’s headline interest rate currently stands at 2.25% and there are mixed views on whether this will have been trimmed to 2.00% (or perhaps below), by tomorrow morning. Analysts predict that if the RBA does drop the cost of borrowing to 2.00%, then the Pound Sterling Australian Dollar will spike back upwards to above the two to one level. If, on the other hand, Australia’s policymakers, remaining wary of the recovery in global commodity prices over the past month, choose to sit on their hands and keep things as they are, then GBP AUD is likely to peel back down into the low 1.9000s once again.

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