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USD/INR - Indian Rupee at 7 Month Highs on Lower Inflation Data

USD/INR - Indian Rupee at 7 Month Highs on Lower Inflation Data

2014-03-17 15:00:00
Gregory Marks,
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USD/INR Lower Inflation Data

Talking Points:

-Wholesale Price data on Friday confirms improved inflation data

-USD/INR hits 7 month low last week (Indian Rupee high)

-Indian Rupee up 1% year-to-date

The Indian Rupee (INR) touched highs not seen since August 2013 against the US Dollar last Monday as incoming data continues to show inflation levels that are declining month over month (USD/INR lows). On Friday the 14th we saw additional data come out that indicated more of the same in regards to Indian prices. Wholesale Prices YoY saw a decline to 4.68% vs. 4.90% estimated and 5.05% prior.

These sort of small, but meaningful developments in the Indian market strike confidence in the Reserve Bank of India’s ability to finally tackle rampant inflation that has plagued the Indian economy and the Indian Rupee for years. Following a year of relatively strong data thus far for an emerging market, it is notable that the Indian Rupee is actually 1.00% higher against the US Dollar at the time of this report. In the current environment of emerging market selloffs, this is an impressive feat to say the least.

USD/INR News - Febraury Inflation Table

February Inflation Category

Data (YoY)

Official Inflation Rate

4.68%

December Revision

6.4% vs. 6.33% prior

Primary Articles

6.33%

Fuel, Power, Light

8.75%

Manufactured Products

2.76%

Food Articles

8.12%

*2023 Bond Yield Change at Release

8.77% vs. 8.78% prior

In addition to Wholesale Price data on Friday, we also received comments from top Indian economist and ex-RBI Governor Dr. Rangarajan. He stated that 2014 fiscal year growth is likely to be 4.9%-5.0% while for 2015 that figure would be 5.5%-5.6%. Also mentioned was the fact that slowing inflation will give the central bank ‘more room.’ In this the economist is noting that if price levels continue to decline on the back of slow increases in the key benchmark interest rate, the Reserve Bank of India will have more flexibility on maintaining rates as not to disturb growth. This is one of the key tradeoffs that the RBI is currently engaging in and the head of the central bank has stated on multiple occasions that short term diminishing growth prospects is worth the long term benefits of stable price levels. As to whether the Reserve Bank of India will hike rates once more, note that the rate decision will take place on April 1st at 05:30 GMT.

Gregory Marks, DailyFX Research Team

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