USD/INR Rises Despite India’s Economy Exiting a Technical Recession

The Indian rupee joined the selloff in the broader emerging market currencies, testing 74.00 against its US peer at the end of the trading week. Although India has exited a technical recession, the rupee has slumped in the first two months of the calendar year, with investors continuing to pour into conventional safe-haven assets, such as the greenback and the Swiss franc.

According to the Ministry of Statistics and Programme Implementation (MOSPI), the gross domestic product (GDP) rose 0.4% year-over-year in the fourth quarter, falling short of the market forecast of 0.5%. This represented the first quarterly expansion since the first quarter of 2020.
Both private and public spending rebounded, with manufacturing, construction, agriculture, utilities, and professional services driving Q4 growth. Exports tumbled 1.7%, while imports slipped 2%. Infrastructure output edged up at an annualized rate of 0.1% in January, down from the 0.2% boost in December.
The GDP reading meant that the developing country came out of a technical recession. But Shilan Shah, senior economist at Capital Economics, wrote in a research note that there are still reasons to be cautious, alluding to bad loans emanating from an ailing banking sector.

While new Covid-19 cases remain low, the recent flare up in Maharashtra highlights the risk of targeted lockdowns, at least in the near term.

On the financial side, foreign exchange reserves rose 0.3% to $583.9 million in the week ending February 19, up from $583.7 million in the previous week.
Deposit growth expanded 11.8% year-over-year in the week ending February 12, and bank loan growth surged 6.6% during the period.
Next week, the manufacturing purchasing managers’ index (PMI) and trade data will be released.
Despite India seeing a tremendous improvement in the fight against the coronavirus pandemic, the rupee has failed to find support. The seven-day average has fallen to a little more than 14,000, down from a peak of around 93,000 in September of last year. In total, confirmed cases had topped 11.1 million, with a death toll of 157,000.
The USD/INR currency pair jumped 1.09% to 73.9371, from an opening of 73.1405, at 17:26 GMT on Friday. The EUR/INR climbed 0.33% to 89.34, from an opening of 89.05.
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Original from: www.earnforex.com