Indian Rupee/US Dollar (INR/USD) Weakness Is Likely To Prevent RBI Adjusting Rates

Published: 13 Jun at 4 PM Tags: Dollar, America, Canadian Dollar, USA, Canada, India,

Indian Inflation might be softening, and economic growth may have slumped to a decade low, but the Reserve Bank of India is unlikely to lower policy rates when it meets on Monday.

Economists are largely expecting that because of a concerning current account deficit and a weak rupee upping the cost of imports the Indian central bank will refrain from adjusting the current 7.25 per cent repo rate.

Yesterday India’s credit rating outlook was also downgraded from stable to negative by Fitch Ratings, one of the top three ratings agencies. The decision was largely reflective of ‘the measures taken by the government to contain the budget deficit [and] some, albeit limited, progress in addressing some of the structural impediments to investment and economic growth.’

Earlier this week the Rupee plummeted to an historic low of 58.98 against the US Dollar. Although it has since strengthened to trade in the region of 58.01 the currency remains vulnerable.

As chief economist Tirthankar Patnaik comments: ‘The Rupee depreciation will allow the RBI to bolster its anti-inflation rhetoric in the June policy review. They might choose to pause this time due to the exchange rate weakness.’

Similarly, another industry expert commented: ‘Certainly the risks to the current account deficit have worsened after this sharp fall in the rupee. This will be an equally dominant factor as inflation, if not more, in policy making.’

The Rupee weakened to 58.1325 during the local session in the wake of the World Bank’s decision to pare global growth estimates in anticipation of the rate of stimulus easing in major economies like the US.

According to the World Bank the global economy will grow by 2.2 per cent in 2013. That’s 0.2 per cent lower than forecast in January.

As stocks declined and risk-aversion grew following the announcement the attempts of Indian policy makers to boost local Dollar supplies were counteracted and the Rupee fell.
As of Thursday, 13th June 2013, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP USD exchange rate was 1.5712, GBP CAD exchange rate was 1.5961, and GBP INR exchange rate was 91.127.

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