The Indian rupee is strengthening against many of its major currency counterparts to finish the trading week, buoyed by better-than-expected economic data. With the coronavirus pandemic seemingly subsiding, the rupee could be setting itself up for a noteworthy rally against the greenback and the euro. Can the Indian economy return to pre-pandemic levels?
According to the Ministry of Statistics and Programme Implementation (MOSPI), industrial production expanded 1% year-over-year, beating the market forecast of a 0.2% decline. Manufacturing output also surged at an annualized rate of 1.6%, coming in higher than the median estimate of -0.9%.
India’s industrial and manufacturing sectors witnessed higher output for metals, chemicals and chemical products, motor vehicles, and machinery. It did, however, report falling output for food products and refined petroleum products.
The annual inflation rate advanced 4.06% year-over-year in January, down from the 4.59% jump in December. Economists had penciled in a rise of 4.45%. This is also the lowest reading since September 2019, thanks to slower inflation for food, particularly vegetables.
On the financial side, the Reserve Bank of India reported a drop in foreign exchange reserves, totaling $583.95 billion in the week ending February 5. This is down from $590.1 billion in the previous week.
Deposit growth increased 11.5%, while bank loan growth jumped 5.9%.
Meanwhile, a new forecast from the State Bank of India (SBI) Research predicts that the Indian economy could contract 7% in the fiscal year 2021.
Soumya Kanti Ghosh, the group chief economic adviser at State Bank of India, said in a research note:
We now expect GDP decline for the full year to be around -7 per cent compared to our earlier prediction of -7.4 per cent. Also, Q4 growth will also be in positive territory at around 2.5 per cent.
We retain our GDP forecast for FY22 at 11 per cent (RBI has pegged it at 10.5 per cent and the economy survey at 11.5 per cent and the budget did not offer a GDP estimate), but with the caveat that 11 per cent will be the floor below which it cannot fall.
India’s COVID-19 public health crisis continues to improve, with the seven-day average of new infections heading toward 11,000. The peak was about 95,000 in September. More people are also getting vaccinated. In total, the Indian government has reported 10.9 million cases, with a death toll of 155,000.
The USD/INR currency pair tumbled 0.15% to 72.5974, from an opening of 72.7067, at 19:13 GMT on Friday. The EUR/INR slipped 0.31% to 87.95, from an opening of 88.20.