Rupee Rises to Highs of 79.70 Versus the Pound After Inflation Surprise
India's Rupee (INR) rose to a high of 79.71 versus Sterling on Tuesday, March 14 after CPI came out above expectations, suggesting the Bank of India will not be cutting interest rates any time soon.
Data showed the country's overall inflation rate rose to 3.65% in February, above expectations of 3.58% and the previous 3.17%.
Higher relative interest rates support currencies as they attract more foreign capital inflows seeking a better return on their money.
The data followed data showing a higher-than-expected rise in Wholesale inflation in the country,
In a report from the Indian Ministry of Commerce & Industry it was noted that Indian Wholesale Prices (WPI) rose to 6.55% in February, from 5.25% in the preceding month.
Analysts had expected Indian WPI to rise to 5.90% last month.
The Rupee, which was already in an uptrend from Prime Minister Modi’s resounding election win over the weekend, kicked higher on the news, with the GBP/INR pair falling from 80.85 to lows of 79.71 during trading on Tuesday 14.
The outlook continues to favour more downside for the currency, with technical studies suggesting a continuation from the current level to major support at 79.00 Rupees to the Pound is now within reach.
The Rupee was Already in Uptrend Following Uttar Pradesh Election
INR gained a fresh boost higher on Monday, March 13 after the elections at the weekend showed a landslide win in the key state of Uttar Pradesh, which was seen as a ringing endorsement of the current government’s reform agenda.
The win saw Prime Minister Modi’s BJP party gain 312 out of the 403 votes in the state, a much higher margin of victory than had been expected.
His success in the election was seen as a key litmus test for the governing regimes ongoing popularity; and following its victory a repudiation of political foes who assumed that Modi’s disruptive November 8 move to remove high-denomination notes from circulation and encourage the use of bank accounts would be politically unpopular.
The win makes it look more likely Modi will win a second term and be able to enact more of his reform policies.
These include federal land and labour market reform and a plethora of other policies which are widely seen as positive for growth and alleviating poverty.
India’s economic growth has been 7 percent or more in each of the last four quarters making it the fastest growing country in the world (now ahead of China).
The mixture of growth and Modi’s reformist agenda has helped lure $3.4 billion of foreign funds into the nation’s stocks and bonds this year.
His continued presence at the help is expected to be a catalyst for more inflows of capital and investment, further bolstering the outlook for the Rupee.
