GBP to INR Parabolic Rally Gains Steam After RBI Decision

Summary:
• The GBP to INR exchange rate continued its comeback this week as the market reacted to the decision by the Reserve Bank of India

The GBP to INR exchange rate continued its comeback this week as the market reacted to the decision by the Reserve Bank of India (RBI). It surged to a high of 101.02, the highest point since May 24. It has recovered by over 18% from the lowest level this year.

India and UK divergence

The GBP/INR price has done relatively well as investors focus on the ongoing India and UK economic divergence. In Europe, the UK has already entered a deep recession that is expected to last for most of 2023. This slowdown happened as inflation remained stubbornly high while the Bank of England (BoE) has ratcheted up its rate hikes. The UK is expected to have the slowest recovery in the G20 countries excluding Russia.

On the other hand, India’s economy has done well this year as the country took advantage of the Ukraine crisis to scoop cheap Russian oil and gas. As the benchmark Brent crude oil traded for over $90, India was able to buy Russian ural for as little as $50. As a result, India’s inflation has been contained while its stock market has done substantially well this year. 

Most importantly, India has done well because of the ongoing Chinese weakness. Many companies with manufacturing plants in India like Apple have moved some of their production to India as the reshoring expands.

On Wednesday, the RBI decided to hike interest rates once again. It pushed the benchmark rate from 5.90% to 6.25%. The reverse repo remained intact at 3.35% while the cash reserve ratio remained at 4.50%. Analysts now expect that the bank will deliver several small interest rates in 2023.

GBP to INR forecast

The GBP to INR exchange rate has been in a strong bullish trend in the past few weeks. This rebound continued after the latest RBI interest rate decision. Most importantly, the 50-day and 200-day moving averages have made a golden cross, which is a positive thing for the pair, Oscillators have continued rising as well. It also formed an inverted head and shoulders pattern.

Therefore, the GBP/INR price will continue rising as buyers target the next key resistance level at 102. A move below the support at 98.22 will invalidate the bullish view.