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Pound to Rupee (GBP/INR) Exchange Rate Lowers as BoE Weigh on Sterling

July 23, 2014 - Written by Frank Davies

The Pound to Indian Rupee exchange rate softened yesterday as Sterling weakened against most of its major peers after the release of the minutes of the Bank of England’s July policy meeting caused investors to pare their bets that interest rates could be raised before the end of the year. The current GBP INR level is holding steady at 102.1984.

The minutes showed that the Bank of England’s policy makers voted unanimously 9-0 to leave the UK’s interest rate at the record low level of 0.5%. Concerns over low wage growth were the main cause for the monetary policy committee to restrain from voting for a rate rise.

Some economists are forecasting that August will be the month where MPC attitudes change in favour of rate rises; of course it will still depend on positive data out of the UK economy.

“The MPC has reached a cross roads, and next month’s inflation report should give us a much clearer picture of the road the MPC will go down. In contrast to the previous inflation report, which signalled that interest rates would remain on hold for some time, the inflation report in August will be a lot more balanced in its conclusions. The Bank’s estimate of slack will almost certainly have narrowed, although this will be accompanied with a greater degree of uncertainty. Overall, this should result in a more hawkish steer,” said John Bulford, economic advisor at the EY ITEM Club.

Bank of England governor Mark Carney also dimmed expectations for a rate hike whilst addressing a conference of business leaders in Glasgow ahead of the start of the Commonwealth Games.

“As the economy normalises, Bank Rate will need to start to rise in order to achieve the inflation target. But the MPC [monetary policy committee] has no pre-set course and the timing of any increases in interest rates will be determined by the data...The MPC is supporting investment through clear guidance that it expects increases in Bank Rate, once they begin, to be gradual and limited.
‘From my own experience visiting businesses up and down the country, including some in Glasgow earlier today, I know that businesses understand this message. This guidance puts all the short-term noise about when the first rate rise will be into its proper context and it encourages firms to hire and invest with an eye to the medium term. Even when spare capacity is used up, Bank Rate will need to be materially lower than in the past in order to keep the economy operating at its potential and inflation at its target,” Carney said in his speech to economists and journalists.

The Indian Rupee meanwhile found support from reduced concerns that the inflation in the Asian nation will accelerate. Initially economists had feared that a weaker than hoped for Monsoon season would force up the price of food goods which are dependent on the rains. At the start of the annual June to September rainy season rainfall had been alarmingly below the 50-year average. The gap on July 11th had been 43% but today it was revealed that the gap had narrowed to 27%.

As a result of the positive news regarding the rains the Rupee advanced against the majority of its peers and made its best rise in more than a week against the US Dollar.

The Rupee also found support from increased inflows from foreign investors who have been attracted to India following the election victory of Prime Minister Narendra Modi. Pledges to narrow the nation’s budget deficit have raised confidence in the economy from foreigners looking to offload their cash.

The Rupee could make further gains on Thursday if data out of China comes in strongly and helps support emerging market and commodity based currencies.

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