GBP/INR: Rupee Turns Bearish Amid Stagflation Worries

GBP/INR is increasing in early trading on Thursday. One British pound now buys 92.537 Indian rupees, up 0.16% as of 6:10 AM UTC. Thus, the pair is departing from the monthly low touched on Tuesday.

INR down as inflation rose more than expected

The rupee started to show signs of weakness after economic data pointed to India’s economic troubles. The country’s annual retail inflation surged to its higher level in about six years, while industrial output surprisingly contracted.

The government said that retail inflation rose to 7.59% last month, driven by vegetable prices. Analysts expected a 7.40% rise. In December, the inflation rate grew by 7.35%. Note that the Reserve Bank of India’s (RBI) inflation target in the medium-term is 4%, so it might be forced to leave interest rates unchanged this year because it doesn’t have room for further easing.

Separately, the government said that the industrial output in December contracted 0.3%, after increasing in November for the first time in three months. Economists polled by Reuters expected a rise of 1.8%. The poor performance was caused by a 1.2% drop in manufacturing and a 0.1% decline in electricity.

Rupa Rege Nitsure, chief economist at L&T Financial Holdings, said that the mix between the economic growth and inflation has seriously deteriorated. Thus, there will be “a longer pause in the rate-cutting cycle.”

Last week, the central bank maintained the rate unchanged and downgraded its economic growth outlook for the first six months of the next fiscal year.

Deloitte India economist Rumki Majumdar commented:

“The contraction in the IIP (industrial output) in December raises concerns about the sustainability of the green shoots in industrial activities that were visible till last month.”

Earlier this week, finance minister Nirmala Sitharaman expressed her hopes that the economy was reviving, adding that the green shoots were visible. However, according to some economists, the latest updates suggest that those green shoots might have been only temporary.

GBP strong thanks to positive housing market data

Elsewhere, the sterling is supported by housing market data released by the Royal Institution of Chartered Surveyors’ (RICS). The monthly house price index jumped to +17 last month from -2 in December, which is the best figure since May 2017.

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