GBP/INR Moving Sideways After RBI Left Rates Unchanged

GBP/INR is slightly advancing in early trading on Thursday, trying to recover from a bearish start of the month. However, the pair is still moving close to the lowest level since January 20, which was touched yesterday. Currently, one British pound buys 92.598 Indian rupees, up 0.07% as of 6:05 AM UTC. The pair shows no direction at the moment.

The Pound Sterling continues to benefit from strong services PMI data published on Wednesday.

GBP/INR – In India, MPC keeps its short-term interest rate unchanged

In India, the central bank’s monetary policy committee (MPC) decided earlier today to maintain its short-term interest rate unchanged at 5.15% during the sixth policy meeting of the current financial year.

The Reserve Bank of India (RBI) surprisingly kept the rate during the December meeting as well, saying that further rate cuts at that point could worsen the deflationary pressure. All six members of the MPC voted to hold the rate at previous levels. The bank said in a statement:

“The path of inflation is, however, elevated and on a rising trajectory through March quarter. The outlook for inflation is highly uncertain at this juncture.”

The RBI raised its consumer prices index (CPI) expectations for the three months to March to 6.5% and for the first six months of the financial year 2021 to 5.0-5.4%. The forecast for the economic growth for the fiscal year 2021 was maintained at 6%.

Governor Shaktikanta Das said that CPI in December, excluding onion, had likely been 5.2%.

Joseph Thomas, Head of Research at Emkay Wealth Management, said that the central bank had figured out a way to reconcile the requirements of growth with stability.

“At this juncture, rate modification is actually not required as the interbank market has a huge surplus of close Rs3 lakh crore (3 trillion rupees) to support the liquidity requirements of the system,” Thomas explained.

RBI said that it could revive India’s economic growth through means other than reducing the rate. Some economists expect the next rate cut no earlier than October 2020.

The current economic slowdown is driven by liquidity issues, weak demand in rural regions, and poor access to credit. Thus, by sticking to a neutral stance, the RBI might continue to have an impact on liquidity and lending.

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