- Fitch forecasts -5% contraction in FY21, followed by +9.5% growth in FY22 in India, Rupee (INR) softens
- Indian Inflation expected to reach 6 month low in May, of 5.5%
- US Dollar (USD) will look to Federal Reserve rate announcement and quarterly forecasts
- At 10:15 UTC, US Dollar to Indian Rupee (USD/INR) trades +0.1% at 75.57
The Indian Rupee is losing ground versus the US Dollar on Wednesday, extending losses for a second straight session. The Rupee settled on Tuesday -0.14% at 75.50.
At 10:15 UTC, USD/INR trades just +0.1% at 75.57. This is mid-way between the daily traded range of 75.40 – 75.61.
International rating agency Fitch said that the coronavirus outbreak has drastically weakened India’s economic outlook, whilst laying bare the challenges of rising public debt. Fitch warned that the lack a credible strategy for stabilising public debt could put India’s sovereign rating at risk. The warning comes just days after Moody’s, another international rating agency, downgraded India’s credit rating.
Fitch also said that it expects the Indian economy to contract -5% in Fiscal year 2021 but then bounce back in fiscal year 2022 with growth of 9.5%. General government debt currently stands at 70% of GDP. Fitch said they now expect this to rise to 84% in fiscal year 2021.
Domestic data showed that inflation in India, as measured by consumer prices is likely to have eased to a six-month low in May. Consumer prices are expected to rise 5.5% in May on an annual basis, according to Reuters analysts, this is down from 5.8% in March. There is no inflation data for April. The official reading is due on 12th June.
The US Dollar was trading slightly lower versus major peers as investors look ahead to US inflation figures and the Federal Reserve monetary policy announcement.
Analysts are expecting US inflation to remain subdued in May at 0% month on month. This would be a significant improvement from April’s -0.8% decline. Annually, inflation is expected to increase just 0.2%, well short of the Federal Reserve’s 2% target as prices came under pressure as demand evaporated.
The Fed is not expected to hike rates. Investors will be watching the Fed’s quarterly GDP and inflation forecasts closely. Additionally, the Fed’s tone will be important after several stronger than forecast data releases. If the markets fear that the Fed could start to ease off its accommodative stance, the safe haven US Dollar could jump.