The Indian rupee is trying to reverse the decline against the US dollar and euro this year, despite inflation ravaging the emerging market. The rupee has slumped considerably in the first two months of trading, and many market analysts are bearish on the currency’s near-term performance.
In January, the annual inflation rate surged 12.96%, higher than the market forecast of 12.7%. This was slightly down from the 13.56% gain in the previous month. On a month-over-month basis, the inflation rate dipped 0.3% last month, the government reported Monday.
The most significant factors driving inflation were fuel (32.27%), food (9.55%), and manufacturing (9.42%). For the last couple of years, rampant price inflation has decimated an economy that had been horrifically impacted by the COVID-19 public health crisis.
On Friday, manufacturing production dipped 0.1% year-over-year in December, while industrial output edged up 0.4% to end 2021.
Bank loan growth clocked in at 8.2% in the week ending January 28, while deposit growth totaled 8.3% in the same period. Foreign exchange reserves eased to $631.95 billion in the week ending February 4.
Last month, India’s trade deficit expanded to $17.95 billion, compared to $14.49 billion in the same time a year ago. Imports climbed 23.74% to $52.01 billion, while exports advanced 23.67% to $34.06 billion. India imported more electronic goods, coal, and crude oil. Exports were mainly comprised of gems, jewelry, and engineering goods.
Looking ahead, the Reserve Bank of India (RBI) forecast that the nation’s economic growth for the financial year 2023 would be 7.8%, while the growth rate for the current financial year remained the same at 9.2%.
“The RBI policy was largely on expected lines with, yet again, a clear emphasis on ensuring that the economy is on a path of durable growth recovery. It showed a clear tilt towards growth and a view that inflation, where elevated, is driven more by the supply disruptions rather than entrenched demand side pressures,” said chief economist at HDFC Bank Abheek Barua in a note.
The USD/INR currency pair dipped 0.1% to 75.57, from an opening of 75.64, at 12:44 GMT on Monday. The EUR/INR tumbled 0.45% to 85.46, from an opening of 85.84.