The Pound Sterling to Indian Rupee (GBP/INR) exchange rate fell again on Friday as optimism increased that demand for emerging market assets will remain due to the prospect of more monetary stimulus measures in the Eurozone.
Disappointing economic data out of France and Germany caused investors to favour the higher yields offered by the riskier emerging and commodity based assets. The weakness in the Eurozone has increased speculation that the European Central Bank is moving closer to introducing a full-scale quantitative easing programme. ECB President Mario Draghi said earlier in the week that policy makers might introduce more measures at this month’s policy meeting in an attempt to tackle the threats posed by deflation and weak economic growth.
Also buoying the Indian Rupee exchange rate was the release of the US Federal Reserve’s December policy meeting minutes, which showed that policy makers are unlikely to raise interest rates until late April. The US Dollar came under more pressure after Federal Reserve of Minneapolis President Narayana Kocherlakota warned against hiking interest rates too soon. The ‘Greenback’ is expected to remain softer even if upcoming US nonfarm payrolls data comes in positively.
‘We’re seeing some Fed officials starting to hint they may slow the pace of rate increases, so even if the labour report shows strong numbers, it won’t be a reason for the Dollar to gain too much,’ said the chief market economist at Mizuho Bank Ltd.
Growth Revised Higher
The Indian Rupee was also supported by the Reserve Bank of India expecting the economy to expand by 5.5% in the year ending March 2015, a sharp rise from the previous year’s figure of 4.7%. As long as weakness persists in the Eurozone and the Federal Reserve refrains from hiking interest rates, we can expect the Rupee to continue to receive support from increased foreign investor demand.
‘Strong inflows continue to lend support to the Rupee. India looks relatively attractive when you see other major world economies slowing,’ said Paresh Nayar, head of currency and money markets at FirstRand Ltd. in Mumbai.