GBP/INR continues to surge on Wednesday morning, gaining over 2.10% during the last four sessions. Currently, the pair is trading at 94.263, up 0.76% as of 5:50 AM UTC. The price has just hit the highest level since February 3 and is about to break that resistance and touch the highest since January 7.
RBI Governor Hints to Rate Cut
The rupee is tumbling even against a weakening pound amid the coronavirus outbreak. Investors fear that the impact of the virus on the global economy would eventually hurt India’s trade-reliant economy, which has been already struggling with a slowdown caused by domestic factors.
Reserve Bank of India (RBI) Governor Shaktikanta Das told Bloomberg that he was ready to protect the economy from the coronavirus effect, saying that there was room for interest rate cuts if needed. These comments were a bit surprising because the central bank didn’t cut its rates during the last two meetings precisely because there was no room for such measures, as the inflation was increasing at a rapid pace and created the conditions for the so-called stagflation.
Nevertheless, the governor said that India could support the market through a rate cut and liquidity measures, prompting investors to dump rupees.
Das said that inflation is expected to slow down a bit, arguing that the RBI’s flexible inflation-targeting framework allows it to loosen policy. He stated:
“We’re ready for a response should the situation warrant. And going forward, in the near future, I do expect some discussion through video conference or telephone conference among the central banks of the large economies, including India.”
Das is referring to the coordinated effort of central bankers worldwide to address the risks caused by the coronavirus epidemic. On Tuesday, finance ministers and central bankers of G7 countries met to monitor the situation and collaborate on a joint retaliation plan.
“We, G7 Finance Ministers and Central Bank Governors, are closely monitoring the spread of the coronavirus disease 2019 (COVID-19) and its impact on markets and economic conditions,” the group said in a statement.
Some central banks, including the US Fed, the Reserve Bank of Australia, and the Central Bank of Malaysia have already cut their rates in the last few days.
The rupee ignored the positive data that shows India’s dominant service industry accelerated at the fastest pace in over seven years in February. The Nikkei/IHS Markit Services Purchasing Managers’ Index (PMI) jumped to 57.5 from 55.5 in January.