The Indian rupee is sliding against many of its major currency rivals midweek as the latest data threatens to raise the risk of a recession. New manufacturing and services readings provide a grim portrait of the developing economy, which could force the federal government and the central bank to initiate additional stimulus to mitigate the financial crisis.
The IHS Markit manufacturing purchasing managers’ index (PMI) crashed to 27.4 in April, down from 51.8 in March – anything below 50 indicates a contraction. The market had penciled in a reading of 42. This is the sharpest decline in manufacturing activity in more than 15 years. Output, employment, new orders, and business confidence all plummeted in the wake of the national lockdown restrictions.
The services PMI cratered to 5.4 last month, down from 49.3 in the previous month. The median estimate was 40.0, and the steepest plunge in 14 years. New orders, international sales, business sentiment, and employment levels were the weakest since December 2015. Industry observers anticipate that the economic decline will linger for several more months.
IHS Markit economist Joe Hayes said in a statement:
Historical comparisons with GDP (gross domestic product) data suggest that India’s economy contracted at an annual rate of 15 percent in April.
Approximately 97 percent of survey respondents observed a reduction in output, highlighting the widespread impact of the COVID-19 pandemic.
In the coming weeks, the moratorium on loan repayments will conclude, and bankers are thinking about offering the benefit to non-bank lenders and housing finance companies. After meeting with Reserve Bank of India (RBI) Governor Shaktikanta Das, the central bank confirmed that it did not see any problems with financial institutions allowing mortgage lenders and other borrowers to defer payments until May 31.
At the end of March, the RBI permitted banks to extend a three-month moratorium on repayments due between March 1 and May 31 on term loans to retail and corporate borrowers.
Banks are also urging the central bank to extend the moratorium repayments beyond May 31 since the lockdown was extended until May 17. They contend that borrowers would need time to rejuvenate their businesses, plus it could allow lenders to institute a one-time restructuring scheme for corporate clients.
The USD/INR currency pair surged 0.48% to 76.11, from an opening of 75.74, at 19:36 GMT on Wednesday. The EUR/INR rose 0.25% to 82.29, from an opening of 82.09.