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GBP/INR Exchange Rate Forecast to see Mixed Trading ahead of Indian Holidays

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The Pound has been climbing versus the emerging-market Indian Rupee (GBP/INR) on Tuesday, following the Reserve Bank of India’s (RBI) decision to keep interest rates steady at 8% to protect against inflation. Indian inflationary levels have been stubbornly high and the RBI has decided to continue with the current repurchase rate until signs of retreating inflation become apparent.

Economist Rajiv Biswas commented: ‘Inflation pressures seem to be easing and fears of the impact of a deficient monsoon too are abating. But the RBI will look for signs that show the slowdown in price rises is sustainable [before taking action].’

The current RBI target will see the interest rate lowered to 6% by January 2016, with lower rates enabling more expansive economic growth. RBI Governor Raghuram Rajan stated: ‘As of now we are reasonably set and we will reach that target, but a lot can happen in the world. Oil prices, which are low now, can go up or they can go even lower. Every other factor is subject to some uncertainty. The policy will be data contingent.’

Meanwhile, Indian Prime Minister Narendra Modi is taking action to kick-start the manufacturing sector and implementing methods to increase growth and attain a better ranking from credit ratings agencies. Presently India has a BBB- rating, a low level justified by a lack of wealth in the economy. Economist Rpupa Rege-Nitsure suggests: ‘Policy will remain unchanged in the foreseeable future. The pressure is on the Modi government more than ever to control inflation.’

Meanwhile, the Pound has enjoyed gains on Tuesday from upbeat second quarter Gross Domestic Product (GDP) figures. The Pound has been reactive to a mixed bag of UK data in recent weeks, causing highs and lows for the GBP exchange rate. However, Tuesday has seen UK economic growth revised up to a favourable 0.9%, in comparison to the previous 0.8% forecast. Moreover, the Office of National Statistics (ONS) also stated that because of the newly revised figures, the recession downturn was less than expected. ONS statisticians wrote: ‘The new data show that during the recent downturn the economy shrank by 6.0%, rather than the 7.2% previously estimated.’

However, such favourable data suggests that the Bank of England (BoE) will feel further pressure to increase the current interest rate. At present, rate hikes in the UK economy appear on course for spring 2015; however, some investors and economists hope for a rise before then which would make the UK the first of the Group of Seven (G7) developed nations to increase rates since the recession.

Economist James Knightly suggests: ‘The substantial revisions due to new methodology mean that the UK economy is now 2.7% larger than it was before the global financial crisis started… which implies there is now less spare capacity in the UK economy than previously thought. Taken on its own this could suggest that the UK may need to raise rates earlier and more aggressively than previously expected.’

Pound to Indian Rupee (GBP/INR) Exchange Rate Forecast

The Pound to Indian Rupee exchange rate will continue to experience movement from today’s RBI rate decision and favourable UK GDP figures. Wednesday will see the release of Markit UK Manufacturing Purchasing Managers Index (PMI) which is expected to increase to 52.7 in September. However, Indian Manufacturing PMI will also be published on Wednesday and may soon show the attempts of President Modi’s latest scheme to encourage more productivity in the manufacturing sector. The GBP to INR exchange rate has traded at session highs of 100.3870 and lows of 99.7600.

Update –

The Pound to Indian Rupee exchange rate gave up some of Tuesday’s gains as traders and investors pared their positions ahead of national holidays.

The Indian financial markets are due to close from Thursday to Monday.

Continuing to weigh upon the Rupee and other Asian currencies however are concerns over the ongoing pro-democracy protests in Hong Kong and data, which showed that Indian factory activity expanded at its slowest pace in nine months last month.

Sterling could push higher later in the session if the latest UK Manufacturing PMI data comes in positively.