GBP/INR is declining in early trading on Monday amid fears of the coronavirus spread in Europe. Currently, one British pound buys 92.918 Indian rupees, down 0.23% as of 5:09 AM UTC. The pair saw a two-day rally until Friday but couldn’t break a strong resistance level at around 93.200.
INR Supported by China’s Readiness to Boost Stimulus
The rupee reacted positively on China’s intention to ease its monetary policy in an effort to address the repercussions of the coronavirus outbreak. China is India’s second-largest trade partner after the US.
China’s government hinted that it was ready to boost stimulus in the fiscal and monetary policy as the coronavirus epidemic is affecting the world’s second-largest economy.
On Friday, Chinese officials promised to President Xi Jinping that they would be open to using fiscal policy to exert “more flexibility” when it comes to monetary easing. Investors interpreted their message as more dovish compared to the monetary policy green-lighted at an economic meeting in December.
Separately, People’s Bank of China’s (PBOC) Deputy Governor Liu Guoqiang stated that the central bank would release part of the reserves of several commercial banks to help long-term funding of the economy. The PBOC might also adjust the benchmark deposit rate when needed.
The coronavirus outbreak is affecting an economy that was already seeing its growth slowing down.
Song Yu, chief China economist at Goldman Sachs-backed Beijing Gao Hua Securities, commented:
“We expect policy loosening to be broad based with the main difference from previous loosening cycles likely to be in the property area. It appears increasingly likely that the budget deficit will be adjusted, though any adjustment will likely be small, no more than 3.5% as an upper limit.”
However, the economist said that the broader augmented fiscal deficit would definitely be much larger.
GBP Under Pressure Ahead of Post-Brexit Trade Deal
Elsewhere, sterling investors are closely watching the spread of the coronavirus, also called COVID-19, in Europe, where Italy is the place to the greatest concentration of the virus after China. The popular Venice Carnival was canceled, as well as several football matches of the Serie A league.
Also, the pound is under pressure amid political tensions ahead of the post-Brexit trade talks between the UK and Europe. French President Emmanuel Macron said on Saturday that he wasn’t confident whether a trade deal would be reached by the end of this year.