GBP/INR: Rupee Declines on FY20 GDP Estimates

GBP/INR continues its gains in early trading on Wednesday. Currently, one British pound buys 94.567 rupees, up 0.31% as of 5:45 AM UTC.

The rupee is under pressure after India’s Statistics Ministry said that the country’s economy was on track to post 5% growth in the year through March 2020, which is significantly lower than previous year’s figures. Besides, increasing oil prices negatively impact Indian importers.

India’s gross domestic product (GDP) will likely grow 5% on the year, which is the slowest growth in about 11 years. The economy is dragged down by the banking crisis, low spending rates, and weak investment.

Last year, the Indian GDP expanded at 6.8%, which is also below normal for the fast-growing economy.

The nominal GDP growth is expected at 7.5%, which is the lowest level in over four decades, according to SBI. In the fiscal year 2019, the indicator was 11.2%. Madan Sabnavis, chief economist at CARE Ratings, commented:

“The growth forecast is on expected lines and reinforces the general trend of slowdown. The private sector is not investing.”

To support growth, the Reserve Bank of India (RBI) cut interest rates five times in 2019, while Prime Minister Narendra Modi slashed corporate taxes. Nevertheless, the results haven’t shown up yet.

NR Bhanumurthy, an economist at National Institute of Public Finance and Policy, said:

“This is the time for fiscal measures… one needs to be pragmatic on macro policy. The slowdown in economic growth implies the government will have to come up with a fiscal stimulus in the budget.”

The International Monetary Fund (IMF) is about to lowest India’s economic growth forecast as well later this month. Previously, it estimated 6.1% expansion.

The rupee also struggles amid increasing oil prices, which rose over 4% to their high after Iran launched several ballistic missiles against US bases in Iraq.

WTI crude futures rose to $65.65 per barrel, the highest since April, while Brent crude touched $71.75, which is the highest level since September.

Michael Bradley, managing director at Tudor, Pickering, Holt & Co., commented:

“I think traders fully anticipated a retaliation, but not on U.S. troops, which leads traders to fear the next move by the U.S. might be a strike back within Iran, which could open a whole other can of worms.”


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