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GBP INR Exchange Rate Tumbles on Dimming Hopes of UK Interest Rate Hike

June 20, 2017 - Written by Toni Johnson

Sterling’s recent decline against the Rupee is mainly due to reduced expectations of a UK interest rate hike.

BoE Governor Carney Damages GBP with Rate Hike Caution

The Pound has slumped by -0.6% against the Rupee today, following a dovish statement from Bank of England (BoE) Governor Mark Carney.

Speaking at Mansion House, Carney outlined his cautious approach to monetary policy, saying;

‘From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment.

In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations’.

The translation is that Carney does not see the correct conditions for a UK rate hike at present, given the current complications in the UK economy.

Other negative news has seen ratings agency Standard and Poor’s warn that it may downgrade the UK’s credit rating.

Especially concerning was S&P’s readiness to cut the UK measure of economic stability; the company’s Sovereign Ratings head Moritz Kraemer has said;

‘We don’t have to wait [until after Brexit]. We will review the UK every six months, and if necessary more often. We will be watching the economic implications, the implications for the public finances, the constitutional implications like the whole Scotland situation...and things like the currency and if it will maintain its reserve status’.

The statement comes after the UK officially begins Brexit talks, having started proceedings on Monday. As part of a bad week for Sterling, these have already seen UK negotiators concede a major point to the EU.

In trying to discuss free trade in tandem with exit proceedings, Brexit Secretary David Davis has been quashed. On the positive side, however, this concession to the EU may make continental negotiators more amenable to future UK suggestions, as it shows a level of deference.

INR GBP Exchange Rate Rises on Plummeting Oil Prices

The Indian Rupee’s advance against the Pound comes despite mixed influences in India.

On the positive side, crude oil prices have fallen steadily today, posting around $43.20 per barrel. This has been beneficial, allowing importers to take in more of the resource for the same price.

Less positively, news has emerged about a possible rift between the Reserve Bank of India (RBI) and the Indian Ministry of Finance.

According to reports, the RBI’s cooperation with last year’s demonetisation strategy has been perceived negatively and as a subservient act.

Since then, the RBI’s lack of interest rate cutting has also apparently enraged the government’s Chief Economic Advisor, Arvind Subramanian.

This quarrel between the two bodies reflects poorly on the Indian economy, but the Pound’s present weakness has mitigated the negative impact of this news, for now.

GBP INR Exchange Rate may Worsen when Parliament Opens for Business

The next big UK event will be Wednesday’s opening of Parliament.

Nearly two weeks after the UK general election concluded, Parliament is finally expected to return to working order.

The matter has been complicated, however, by the fact that the government may not be fully functioning at the time.

Transport Secretary Chris Grayling has speculated that the Conservative-Democratic Unionist Party (DUP) deal may not be signed until days after the parliamentary session begins.

This could mean that the Pound drops when parliament opens, as it would emphasise how unstable a situation the government is still in.

The week’s Indian news is not expected to be high-impact, so Rupee traders may be better off monitoring global crude oil prices.

If the cost of crude continues to fall, then the Rupee may rise further against the Pound.

Elsewhere, any further deterioration in relations between the RBI and Finance Ministry may weaken the Rupee against the Pound.

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