GBP/INR is losing momentum in early trading on Tuesday, after seven straight bullish sessions that culminated yesterday with a 0.74% gain. The pair has managed to consolidate well above 96.000. Currently, one British pound buys 96.222 Indian rupees, down 0.10% as of 6:40 AM UTC. On Monday, the price hit the highest level since June 10.
Today’s decline might be a temporary correction until investors go on to test new resistance levels. The pound is still stronger as the British economy is gradually reviving.
Elsewhere, the rupee is under pressure as the number of new coronavirus cases doesn’t stop to rise.
India’s Prolonged Lockdown Weighs on Recovery
Given the prolonged restrictions, many rating agencies and banks are downgrading their outlook for India. Bofa Securities said yesterday that it had cut India’s GDP estimate for the current fiscal year to a contraction of 6% versus the previous figure of 4%. In the bear case scenario, the economy might drop by 7.5%, the bank said.
In mid-March, the Indian government introduced a nationwide lockdown to curb the spread of the virus. While the restrictive measures started to ease at some point, local authorities in many states and cities are keeping the lockdown due to the high number of COVID cases. Bofa Securities expect the current restrictions to continue until mid-November. The investment bank noted that India’s daily coronavirus cases have increased by 5.8 times since the first unlock effort began last month. If an efficient vaccine isn’t ready soon, the real GDP will contract by 7.5%, the bank said. The Reserve Bank of India (RBI) will be forced to further ease its monetary policy, the report reads.
Separately, Nomura said that the recent improvements in economic activity would most likely go unnoticed. The brokerage stated:
“While high frequency indicators for Q2 broadly suggest a normalization, we see a rising risk that the sequential improvement in activity may fade after the initial post-lockdown normalization.”
The increase in daily cases will weigh on the potential recovery, Nomura said. The report says:
“With daily cases continuing to pick up both nationally and in traditionally safer states (the South and East), we expect increased risk aversion from the public and local governments to weigh on the pace of the economic recovery.”