by RBI Foreign Exchange Division Reportedly Distressed, Has Been Asking the Question Internally for Three Weeks
Reading: Bohiney | The London Prat
MUMBAI — The Reserve Bank of India confirmed Tuesday afternoon that the Indian rupee has, since the Bank of England recent rate rise, been tracking the British pound sterling with a correlation coefficient of approximately 0.91, which is, on every available historical comparison, substantially higher than the correlation between the rupee and any other major currency.
The Correlation
The RBI internal foreign-exchange division has been reportedly attempting to identify the underlying mechanism for three weeks. According to a Deccan Herald source, the working theory is that algorithmic trading systems globally are now treating UK MPC decisions as a generalized signal of monetary tightening rather than as a UK-specific event. The rupee, on every available reading, is therefore being moved by decisions taken in London regardless of any underlying connection to Indian economic conditions.
The Implication
The RBI has indicated that this is, on every available institutional reading, regrettable. The British base rate, the RBI noted, has no operational connection to Indian inflation, Indian growth, or Indian capital-flow conditions. The fact that it is now moving the rupee anyway is, the RBI confirms, a structural problem that cannot, on the available evidence, be unilaterally addressed.
The rupee closed at 84.7 to the dollar.
Pairs well with: The Daily Mash
SOURCE: https://prat.uk/bank-of-england-raises-rates-again-to-punish-anyone-who-enjoyed-a-sandwich/
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