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Indian Finance Minister?s Confidence in Economy Undermines GBP/INR

May 12, 2017 - Written by Ben Hughes

A lack of UK data, coupled with a positive outlook for the Indian economy and monetary policy, has pushed the Pound Sterling to Indian Rupee exchange rate down -0.2% to 82.7830.

The UK data docket has been entirely empty today, giving markets nothing to distract them from yesterday’s poor data and disappointing developments from the Bank of England (BoE).

March figures covering industrial, manufacturing and construction output, as well as trade statistics, all performed worse-than-forecast, showing the weakness that was prevalent in the economy towards the end of the first quarter.

Additionally, BoE Governor Mark Carney left the door open to an interest rate cut in the near-term after telling journalists at his latest press conference that policy could be adjusted up or down depending upon the needs of the economy.

Meanwhile, investors have been cheered by a strong assessment of India’s economic fundamentals from Ashok Lavasa, the Finance Secretary.

Lavasa commented that macro-economic fundamentals, such as inflation and the fiscal deficit were ‘very sound’, meaning the country’s growth could exceed 7.5% in the 2017-18 fiscal year; 0.3% higher than the recent projection released by the International Monetary Fund (IMF).

‘India will not only continue to grow at a healthy rate but it will continue to be a very attractive destination for many investors,’ Lavasa said.

While the latest wholesale price indices showed consumer price growth fell to its lowest level in more than five years during April, economists believe this to be a temporary slowdown.

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This indicates that the Reserve Bank of India (RBI) can avoid adopting an easing bias, holding interest rates at their current 6.25%, which is positive for the Rupee.

Looking ahead, Monday will be a quiet day for UK data, with the only release on the calendar being the midnight publication of Rightmove house price data.

Tuesday, however, will be a much more influential day, thanks to the scheduled release of consumer price figures for April.

This could renew pressure on the BoE to hike interest rates, regardless of how stubbornly the Monetary Policy Committee (MPC) may attempt to overlook price growth.

Indian data on Monday could have a strong influence on the Rupee; the trade deficit for April is expected to have narrowed slightly from -US$10.44 billion to -US$9.8 billion, while the government budget value deficit for March is also expected to have shrank.
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