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Indian Rupee Rises As Trade, Sliding COVID-19 Cases Support EM Currency

November 13, 2020 at 17:46 by Andrew Moran

A heap of 500-rupee banknotesThe Indian rupee is attempting to muster up some momentum to finish the trading week amid positive economic data and improving COVID-19 cases. The rupee, which has struggled since the height of the market meltdown earlier this year, has joined the broader weakness in emerging markets. But with renewed risk appetite and a potential vaccine on the way, could the rupee enjoy a better 2021?

According to the Ministry of Commerce and Industry, India posted a trade deficit of $8.78 billion in October, down from $11.76 billion from the same time a year ago. Exports have slumped 5.4% to $24.82 billion, while imports declined 11.56% to $33.6 billion.

India’s experts have immensely rebounded since crashing in April as the country tries to balance mitigating the public health crisis and supporting the economic recovery.

Foreign exchange reserves surged to $568.49 billion in the week ending November 6. This is up from $560.72 billion in the previous week.

On Thursday, foreign exchange markets homed in on inflation data. The Ministry of Statistics and Programme Implementation (MOSPI) reported that the annual consumer price inflation (CPI) surged to 7.61% in October, coming in higher than the market forecast of 7.3%. This is the highest price inflation reading since May 2014.

The nation witnessed an explosion in food inflation, soaring to a ten-month high of 11.07%. With the Diwali festival season around the corner, prices for vegetables spiked 22.51%, eggs increased 21.81%, meat and fish jumped 18.7%, and pulses climbed 18.34%. There were also gains in transportation, communication, health care, and education.

Industrial production edged up 0.2% year-over-year in September while manufacturing output slipped 0.6% in the same month.

After hitting a peak of nearly 98,000 single-day infections, the number of confirmed COVID-19 cases has been flattening, hitting a three-month low of around 45,000. In total, India has recorded 8.73 million cases, with a death toll of 129,000.

The consensus among market observers is that the Indian economy is being resuscitated. With festival season purchases on the rise and business activity witnessing a revival, experts think India will rebound from its worst annual contraction on record.

Pranjul Bhandari, the chief India economist at HSBC Holdings Plc in Mumbai, wrote in a research note:

The economy is showing clear signs of improving. Monthly sales tax revenues have crossed the 1 trillion rupee mark, manufacturing indicators have rebounded, and even sluggish capital-intensive industries have seen something of an uptick.

The USD/INR currency pair tumbled 0.14% to 74.5820, from an opening of 74.6851, at 16:37 GMT on Friday. The EUR/INR advanced 0.06% to 88.22, from an opening of 88.17.

If you have any questions, comments, or opinions regarding the Indian Rupee, feel free to post them using the commentary form below.

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