Over the course of the last week, the Pound Sterling experienced volatility against the Indian Rupee. The currency pair hit a weekly high of 98.7854 and a weekly low of 96.5390. The cause of the movement was largely the release of upbeat US data releases. At the tail end of last week, data out of the world’s largest economy came in positively and heightened expectations that the Federal Reserve will begin to hike interest rates in September. A rate hike by the US central bank will weigh heavily upon emerging and commodity linked assets.
As this week got underway, it was the Pound’s turn to soften. A weaker-than-forecast manufacturing PMI report caused the currency to give up ground against most of it major peers. On Tuesday, the Pound recovered some of the losses it sustained on Monday as the Indian Rupee was weakened by the decision by the Reserve Bank of India to cut interest rates for the third time this year as it seeks to give Asia’s third largest economy a boost. The bank cut its key repo rate from 7.50% to 7.25%, adding to the cuts made in January and March.
The rate cut comes even as recent data releases showed that India became the world’s fastest growing major economy. In the first quarter of 2015, the nation’s economy has expanded by 7.5% compared to the previous year and beat the 7% figure for China.
‘A repo rate cut of 25 basis points was expected and already factored in by most of the market participants. It is consistent with the RBI’s cautious stance, as it remains concerned about the monsoon outcome, geopolitical trends & US Fed action. RBI’s future actions will be governed not by just the above stated points but also the government’s fiscal responses to adverse monsoon outcome and its effort to push infrastructure growth,’ said a Mumbai based economist.
The RBI warned it would closely track inflationary trends, citing risks posed to food prices if monsoon rains are weaker than expected, or global crude prices recover, or the Rupee weakens due to volatility in global markets. Consumer price inflation hit a four-month low of 4.87% in April, well within the RBI’s target range of 2% to 6%. However, the central bank also projected inflation would rise to 6.0% in January 2016, setting up the possibility of no more rate cuts this year. Economists are now unsure as to whether the RBI will make more rate cuts over the coming months.
On Tuesday the Pound Sterling to Indian Rupee (GBP/INR) exchange rate was trading in the region of 97.0100.