The Indian rupee extended its weakness against its US counterpart in the middle of the trading week, sliding more than 1% as growing coronavirus cases weigh on the currency. Economic data and monetary policy also affected the rupee this week.
On Wednesday, the Reserve Bank of India (RBI) left its benchmark interest rate at 4%, meeting most economists’ expectations. The central bank left its reverse repo rate unchanged at 3.35%, while the cash reserve ratio surprised markets and was kept at 3%.
Policymakers confirmed that they were maintaining an accommodative policy to sustain growth and continue to limit the effects of the coronavirus pandemic on the economy. But officials say they are still monitoring inflation levels.
According to the RBI, inflation is forecast to come in at 5.2% in the first and second quarters, ease to 4.4% in the third quarter, and climb back to 5.1% in the fourth quarter. The gross domestic product (GDP) is projected to pop by 10.5% over the next two years, with the economy anticipated to expand 26.2% in the first quarter, 8.3% in the second quarter, 5.4% in the third quarter, and 6.2% in the fourth quarter.
The RBI also wanted to maintain ample liquidity conditions in the finance sector by injecting fresh lending to banks.
On the data front, key economic metrics slowed down in March. The IHS Markit manufacturing purchasing managers’ index (PMI) fell to 55.4 last month, down from 57.5 in February – anything above 50 indicates expansion. The services PMI declined to 54.6, while the composite PMI dropped to 56.0.
Meanwhile, global financial markets are spooked by the resurgence of COVID-19 infections in India, with new cases and the seven-day average returning to their highest levels since last summer. On Tuesday, new cases topped 115,000 and the seven-day average exceeded 93,000.
In total, India has recorded 12.8 million cases, with a death toll of 166,000. Although more states are implementing restrictions, it might not be enough to curtail the spread that is rapidly expanding than any other country. Experts say that millions of people have started disregarding physical distancing and mask-wearing in public spaces.
Rajib Dasgupta, Chairperson at the Centre of Social Medicine and Community Health at Jawaharlal Nehru University, told Al Jazeera from New Delhi:
“What’s not really been given much emphasis, but could be a lot more important than we think at present, is the emergence of the variants of concern, or the new forms of the new mutated forms of the virus including the UK strain.
The UK strain is being identified for the last couple of weeks, and the rise in India in February coincides well with the rapid global spread of UK the strain between December and January.”
The USD/INR currency pair rose 1.2% to 74.3889, from an opening of 73.5037, at 14:44 GMT on Wednesday. The EUR/INR advanced 1.55% to 88.61, from an opening of 87.27.