GBP/INR: Rupee Tumbles as RBI Cuts Economic Outlook

GBP/INR is surging on Thursday, updating the highest level since the beginning of March this year. The pair has jumped 0.40% so far, breaking the psychological level of 94.000. Now the quotation displays 94.014 as of 6:30 AM UTC.

A few hours ago, the Reserve Bank of India (RBI) surprised everyone when it announced that it had left the interest rate unchanged at 5.15%, while markets anticipated a cut to 4.90%, given the economic slowdown. While this should have been acting as a bullish signal for the rupee, investors reacted on the central bank’s gloomier economic outlook.

The RBI cut its gross domestic product (GDP) growth forecast to 5% for the financial year that ended March. Previously, the bank looked for an economic growth of 6.1%.

The central bank admitted that it had room to cut rates to lower levels, but expressed concerns about short-term inflation.

The bank’s committee explained:

“The MPC recognises that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture.”

The RBI raised the inflation outlook for the second half of the current financial year to 5.1%-4.9%, from a previous forecast of 3.5%-3.7%.

The committee said that it would keep an accommodative stance “as long as it is necessary to revive economic growth, while ensuring that inflation remains within the target.”

Recently, we reported that India’s GDP growth narrowed to 4.5% in the three months to September, from 7% in the same period last year. This is the worst performance in six years. India’s economy is expanding below the threshold required to generate enough jobs for the young generation that enters the labour market.

All six members of RBI’s monetary policy committee voted to keep the key repo rate (INREPO=ECI) unchanged at 5.15%. The reverse repo rate (INRREP=ECI) was maintained at 4.90%.

Elsewhere, the pound looks more confident amid increased hopes that UK Prime Minister Boris Johnson’s Conservative Party will win the election on December 12, which will allow it to handle the Brexit process.

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