Hawkish BoE Policy Meeting Prompts GBP/INR to Rocket
At the time of writing GBP/INR is up by over 1% and is close to recovering its weekly losses.
Pound (GBP) Jumps on Hopes of May Rate Hike from BoE
The Pound is flying high this afternoon as markets reacted positively to the BoE’s latest interest rate decision.
While rates were left on hold as expected today, markets latched onto the BoE’s accompanying statement which said that interest rates may need to rise ‘earlier’ and by a ‘somewhat greater extent’ than previously forecast.
The language used by the bank prompted Sterling to rocket as speculation rose on the possibility of the BoE’s Monetary Policy Committee (MPC) voting for a rate hike as early as May.
Ben Brettell, senior economist at Hargreaves Lansdown said:
‘The bank’s rhetoric echoed that of September’s meeting minutes, which preceded the November rate hike.’
‘It now looks like the next rise could happen as soon as May – the next time the bank’s economic forecasts are due to be updated.’
However, Governor Mark Carney stressed that any acceleration would be reliant upon growth in the UK economy remaining resilient in 2018.
Carney warned that the BoE’s current expectations are based on a ‘smooth’ Brexit and that a ‘disorderly’ spilt could potentially damage the UK economy.
Indian Rupee (INR) Subdued in Wake of RBI Policy Meeting
Meanwhile with little domestic data to impact the Indian Rupee today the currency remains largely muted as investors digest yesterday’s cautious tone from the Reserve Bank of India (RBI).
While the RBI resisted government pressure to lower interest rates and help stimulate growth, much to the relief of markets, it remain cautious on the issue of inflation.
The bank warned that inflation could spike as high as 5.1% in the near future, well above the bank’s target rate of 4% and likely constricting economic growth.
RBI Governor Urjit Patel said:
‘Having a fiscal stance conducive to achieving the 4% [inflation] target is important. And significant deviations from them will make matters challenging going forward.’
GBP/INR Exchange Rate Forecast: Narrowing UK Trade Deficit to Bolster Sterling?
Looking ahead the GBP/INR exchange rate may advance at the end of this week’s session as the UK publishes its latest trade figures, with economists forecasting the nation’s trade deficit will have narrowed in December.
Any gains for Sterling may however be offset by the accompanying industrial production figures, with are expected to reveal that UK factory output slumped from 0.4% to -0.9% over the same period.
Meanwhile INR investors are anticipating next week’s release of India’s own trade and production figures, with the Rupee likely to slide if Industrial output slows in line with predictions.