GBP/INR is moving sideways in early trading on Thursday, after losing over 0.60% yesterday. Currently, the pair is trading at 93.671, up 0.01% as of 5:30 AM UTC.
On Wednesday, the sterling tumbled after European Commission (EC) President Ursula von der Leyen said that it was impossible for the UK and the EU to reach a full trade deal within the deadline set by UK Prime Minister Boris Johnson. The EC chief visited the British PM yesterday in London for the first time since she took the role.
The European official stressed that the two sides would remain the best of friends, but they wouldn’t be as close as before after Brexit, which is scheduled to occur on January 31.
After Brexit, the UK has to secure a trade deal with the bloc. The deadline for the so-called Brexit transition period is set for December 2020. European leaders call for an extension, but Johnson made any such attempt illegal.
Von der Leyen said in a speech at the London School of Economics:
“The more divergence there is, the more distant the partnership has to be, and without an extension of the transition period beyond 2020 you cannot expect to agree on every single aspect of our new partnership.”
Investors fear that the failure to reach a trade deal by the current deadline might lead to a no-deal Brexit, which is the worst-case scenario for the British economy.
The rupee has benefited from these fears. GBP/INR declined yesterday but found strong support at around 93.500.
The rupee has been under pressure itself after the World Bank yesterday cut its forecast for India’s economic growth for the financial year 2020 to 5% from 6% estimated earlier. On Tuesday, India’s statistics office slashed growth estimate in the current financial year to 5% as well.
In its Global Economic Prospects report, the World Bank cites weakness in credit from non-banking financial companies (NBFCs) as the key factor that drags down the economy.
For the World Bank, this is the slowest growth forecast for the Indian economy since the 3.1% growth rate posted in the financial year 2008-09, during the financial crisis.