GBP/INR Continues to Recover Ahead of UK Inflation Data

GBP/INR continues to recover the losses of a bearish trend that wiped out about 3% in one week. Currently, the pair is trading at 92.362, up 0.17% as of 5:50 AM UTC.

While there are no fundamentals to monitor right now, the rupee continues to weaken on stagflation fears, after the Indian government reported that inflation rose to the highest level since 2014 and exceeded the Reserve Bank of India’s target by a margin. On the other side, the economy is still struggling to revive.

The high inflation doesn’t allow the RBI to cut the interest rate and stimulate the economy. In fact, the central bank surprisingly maintained the rate at the last meeting, citing inflation pressure. Economists hope that this state of stagflation is only temporary. Sonal Varma, an economist at Nomura Securities, commented:

“Stagflationary conditions will be temporary, underpinned by our expectation that supply-side pressures will soon subside and the consumption shocks will further depress core inflation. This phase however is likely to be transitory.”

The Indian economy will need the central bank’s support via more easing measures. Yesterday, a report by the State Bank of India (SBI) showed that the economic slowdown affected employment generation. The economy is expected to produce about 1,600,000 fewer jobs in the fiscal year 2020 than 8,970,000 fresh jobs created in the previous year.

The SBI relies on data from the Employees’ Provident Fund Organisation (EPFO), which covers low paid jobs with the salary capped at 15,000 rupees per month. The EPFO data doesn’t touch upon government jobs and private jobs, which are covered by the National Pension Scheme (NPS).

The SBI report said:

“Interestingly, even in the NPS category, state and central government are supposed to create close to 39,000 jobs less in FY20 as per current trends.”

The UK is expected to report on its inflation later today. The Office for National Statistics (ONS) will release several indicators, including the consumer prices index (CPI), core CPI, producer prices index (PPI) input and output, and retail price index (RPI). Thus, the chances are that the GBP/INR pair will become even more volatile.

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