Pound Sterling to Indian Rupee Advances on Monsoon Worries

April 22, 2015 - Written by Frank Davies

STORY LINK Pound Sterling to Indian Rupee Advances on Monsoon Worries

Pound Sterling to Indian Rupee Advances on Monsoon Worries

The Pound Sterling made gains against the Indian Rupee as concerns over a lacklustre monsoon season caused investors to raise their bets that food price inflation will spike sharply over the next month. The Indian currency was also under pressure from a lack of demand for riskier assets as global markets remain wary over Greece’s situation in the Eurozone.

BoE Minutes Support Pound

The Pound made gains against most of its major peers following the release of the Bank of England’s policy meeting minutes from April. The minutes showed that policymakers voted nine to zero in favour of leaving interest rates unchanged at the record low level of 0.5%.

Despite no sign of a rate rise occurring anytime soon the minutes suggest that policy makers are beginning to become increasingly hawkish towards the state of the UK economy. The impact of the strong Pound could allow inflation to rebound faster than expected.

‘This appears to be a mildly more hawkish assessment from the Bank of England, with two MPC members regarding the decision as finely balanced as to whether to tighten policy. Were it not for election uncertainty, we think that the market would be more convincingly looking for a rate rise this year. Should the election proceed smoothly then we suspect a November rate rise remains a distinct possibility,’ said James Knightley, of ING Bank.

Monsoon below Average

The Rupee came under pressure after the Indian weather office released a report, which suggests that India’s monsoon rains could be below average in 2015 due to the impacts of the El Nino weather pattern. A dry spell could be likely, Indian farmers rely on the rains for their crops and a disappointing rainy season could lead to food prices rising. The latest forecast raises concerns for output prospects for major summer crops such as rice, cane, soybean and cotton in the country that is a key global producer of these farm commodities. Indian monsoon rains were negatively impacted by the El Nino weather event in 2009. The four-month long monsoon season turned the driest in nearly four decades and crops failed.

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Also weighing upon the Indian Rupee was the impact of the imposition of retrospective taxes upon foreign companies. The move is likely to cause investors to avoid India in order to avoid being hit by extra taxes.

Looking forward, the Rupee is expected to remain under pressure this week barring intervention by state banks on behalf of the Reserve bank of India to limit volatility in the currency.

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