Pound Indian Rupee (GBP/INR) Exchange Rate Rises following US CPI
(Updated 16:00, 10/2/22) The Pound Indian Rupee (GBP/INR) exchange rate has continued its sharp rise today as central bank policy divergence weighs on the Indian Rupee (INR).
As reported below, last night the Reserve Bank of India (RBI) decided to leave interest rates unchanged, putting pressure on INR. On the other hand, markets expect the Bank of England (BoE) to continue hiking rates throughout 2022.
This divergence of policy gave further strength to the Pound (GBP) following the US CPI print for January.
Last month, US inflation jumped from 7% to 7.5%, beating forecasts of 7.3% and hitting a 40-year high.
This has boosted expectations of a rate rise from the Federal Reserve, but BoE rate hike bets have also ramped up. UK government bond yields surged following the US CPI. The British ten-year gilt has exceeded the near four-year high reached on Tuesday of this week. As a result, Sterling is strengthening.
Meanwhile, Indian government bonds have continued the downside sparked by the RBI decision.
GBP/INR is currently trading at 102.265, its highest level since early November. The pair is up 0.9% from when the RBI announced its decision overnight.
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Pound Indian Rupee (GBP/INR) Exchange Rate Gains following RBI Decision
The Pound Indian Rupee (GBP/INR) exchange rate has jumped higher this morning after the Reserve Bank of India (RBI) left its monetary policy unchanged.
However, Sterling may find its gains limited. GBP investors seem to be waiting on the sidelines ahead of a speech from Bank of England (BoE) Governor Andrew Bailey this evening.
Indian Rupee (INR) Slides as RBI Leaves Interest Rates on Hold
The Indian Rupee (INR) has stumbled this morning after the RBI kept interest rates on hold.
The RBI left its benchmark repo rate at 4% for the tenth consecutive month, saying that an accommodative monetary policy was needed to support India’s economic recovery, particularly following the effects of the Omicron variant.
While economists had expected the bank to hold its repo rate, many were surprised that the bank also kept its reverse repo rate unchanged. Markets had priced in a 20-basis-point rise to bring it closer to the key lending rate.
This surprise dented INR, along with worries that the RBI is behind the curve.
Dr Aurodeep Nandi, India Economist at Nomura, commented:
‘The RBI surprised by not only doubling down on its now familiar orthodoxy of keeping rates and stance unchanged, but also expressed a very dovish outlook for inflation for FY23, forecasting it at 4.5%. This suggests that the RBI is likely to remain behind the curve, until macro circumstances warrant a shift of gears.’
The Rupee is also under pressure today from rising oil prices. Crude petroleum is India’s biggest import, and higher oil prices threaten to push up the country’s current account deficit and increase inflation.
Brent crude is currently trading at $92, just shy of seven-year highs. After dipping earlier in the week, prices are now heading higher, which is weighing on INR exchange rates.
Pound (GBP) Capped amid Caution ahead of BoE’s Bailey
Meanwhile, the Pound’s (GBP) upside against the Rupee may be slightly limited today as GBP investors remain cautious ahead of a speech by Bank of England Governor Andrew Bailey.
Last week, the BoE hiked interest rates. But the central bank surprised markets, with four out of nine policymakers voting for a steeper-than-expected rise of 50 basis points.
Investors saw this as a sign that the BoE was putting its foot on the accelerator, with more aggressive tightening of monetary policy on the way.
However, yesterday the bank’s Chief Economist, Huw Pill, tried to temper these expectations. Pill pushed back on the idea that more muscular action was inevitable, saying that there was still significant uncertainty. GBP slipped in response.
Therefore, GBP investors seem somewhat cautious as they wait for Governor Bailey’s speech.
GBP/INR Exchange Rate Forecast: BoE’s Bailey in Focus
Governor Bailey’s speech this evening could cause some movement in GBP/INR. If Bailey echoes Pill’s caution and uncertainty, GBP could slip. But if Bailey strikes a more hawkish tone then Sterling could make further gains.
Tomorrow’s UK GDP data could also cause significant movement. Month on month, economists expect UK GDP to have contracted by 0.6% in December. Such as a result could put pressure on the Pound.
As for the Rupee, INR investors will be looking at India’s economic data tomorrow, including industrial and manufacturing production.
Meanwhile, oil prices could continue to exert influence over INR exchange rates.