Pound to Indian Rupee (GBP/INR) Exchange Rate Falls as India’s Deficit Narrows to Four-Year Low

The news that India’s current account deficit declined steeply in the third quarter of last year helped the Rupee rally against several of it’s most traded currency counterparts.

The Rupee was close to an almost three-month high against the US Dollar as the local session progressed on Thursday.

Recent figures compiled by the Reserve Bank of India showed that the nation’s current account deficit came in at a four-year low of 4.2 billion Dollars in the three months through December, down from 5.2 billion Dollars in the third quarter.

The narrowing was largely the result of the government’s decision to increase gold import tax repeatedly in 2013 to compensate for Rupee weakness.

However, while the data gave the Rupee a boost, some industry experts are concerned.

Chief economist Dharmakirti Joshi was quoted as saying; ‘It has come down for all the wrong reasons – if the economy picks up, imports will rise and you’ll see the current-account deficit go up again.’

But the Rupee’s advance against the US Dollar was also the result of risk appetite returning to the market and the expectation that tomorrow’s US non-farm payrolls report will show that the world’s largest economy added fewer positions than forecast.

In the opinion of one forex dealer, the level of 61.20 Rupee per Dollar is key. If the currency pushes beyond this point it could possibly strengthen to 61 Rupee per Dollar.

Meanwhile, the Rupee was also able to record a modest gain against the Pound ahead of the Bank of England’s March rate decision.

While recent UK data releases have been positive in the main (indicating that the UK’s economic recovery continued at a steady pace as the New Year began) the central bank is expected to refrain from tapering the level of asset purchases or introducing a rate increase.

If the BoE acts as industry experts expect, Pound movement may be limited today.

However, any surprises could inspire GBP/INR volatility.

Movement in the GBP/INR pairing could also be triggered tomorrow by the UK BoE 12 month inflation report and India’s foreign reserves/deposit growth figures.

Next week Indian reports to look out for include trade balance, inflation rate, industrial/manufacturing production and WPI inflation.