GBP/INR finally bounces back in early trading on Tuesday, after six negative sessions in a row during which the pair lost about 3%. Currently, one British pound buys 92.112 Indian rupees, up 0.33% as of 5:45 AM UTC.
The rupee has been struggling after official data pointed to stagflation – an economic situation in which high inflation persists amid weak demand and high unemployment.
India’s National Statistical Office (NSO) reported that the annual retail inflation has increased at the fastest pace in over five years, driven by surging food and oil prices. Thus, the Reserve Bank of India (RBI) will likely have to pause its interest rate cuts even if the economy continues to face a slowdown.
Retail inflation jumped last month to 7.35% from 5.54% in November, exceeding the RBI’s upper-limit target at 4% for the third month in a row. It is the highest inflation level since July 2014. Economists polled by Reuters expected a reading at 6.20%.
Retail food prices, which account for about 50% of the country’s inflation basket, surged 14.12% last month compared to the same period in 2018, after a 10.01% increase in November. The price of some vegetables rose over four times since June.
Besides this, volatile oil prices, which hit fresh highs amid the Middle East tensions, add to the inflation pressure. India is the world’s third-largest importer, and it would be interested in cheaper oil.
Core inflation, which excludes volatility from food and oil prices, came in at 3.7% in December, which represents a slight increased from November.
Last month, the RBI surprisingly left its interest rate unchanged after several cuts, citing namely inflationary pressures. Analysts expect now that the central bank will maintain its no-change mood at the next meeting.
Darren Aw, an economist at Capital Economics, commented:
“The RBI’s concerns over second-round effects from food inflation and the recent rise in inflation expectations mean the easing cycle has ended.”
Thus, the central bank won’t be able to stimulate a struggling economy. Earlier today, data from Employees’ Provident Fund Organisation (EPFO) estimated a 17.6% decline in fresh jobs in 2020.
