🚨 Rupee Rallies, BoE Holds Firm at 4%: Financial Stability Shocks

Rupee Rallies as BoE Splits 5-4: 3 Forex Market Shocks

The biggest headline came from the Bank of England (BoE) meeting on November 6 (details released this week), highlighting a significant internal split over the policy direction.

• BoE Holds at 4%: The Monetary Policy Committee (MPC) voted by a narrow 5-4 majority to keep the Bank Rate at 4.0%. Crucially, the four dissenting members voted for an immediate 25 basis point (bp) cut to 3.75%.

  • Implication: This close vote signals that a December rate cut is highly likely, as the BoE explicitly stated that the risk of high inflation persistence has become “less pronounced,” while the risk from “weaker demand” is “more apparent.” This expectation of an imminent cut prevented the British Pound (£) from strengthening significantly against the dollar, contributing to cross-currency volatility.

• Fed and ECB Context: This BoE decision contrasts with the cautious signals from the US Federal Reserve (Fed), which, despite having cut rates in October, is non-committal about a December move. The European Central Bank (ECB) remains comfortably on the sidelines. This divergence in policy outlook is a major driver of global forex movements, pushing investors to re-evaluate carry trades and risk exposures.

2. 💱 Forex Market: Rupee Stages a Resilient Rally

After weeks of sustained pressure that pushed the Rupee toward all-time lows, the currency staged a notable reversal during this trading week.

• USD/INR Correction: The USD/INR pair saw a downward correction, with the Rupee appreciating, moving from near the $\text{₹}88.80$ levels to settle around $\text{₹}88.50$ by the end of the trading week.

• Key Drivers of the Rally:

  • Improved FII Flows: Foreign Institutional Investors (FIIs) showed reduced net selling in the Indian equity markets compared to the prior week, easing pressure on the demand side for the US dollar.

  • Easing Crude Prices: The persistent fall in global crude oil prices (a major boon for India, a net importer) reduced the requirement for large-scale dollar purchases by state-owned oil marketing companies. This lowered the immediate dollar demand, supporting the Rupee.

  • RBI Intervention: Market participants suspect the Reserve Bank of India (RBI) continued its efforts to prevent excessive volatility and manage the Rupee’s descent through strategic intervention in the Non-Deliverable Forward (NDF) and spot markets.

• Impact for Exporters ($\text{₹}$): For Indian exporters (Vicky Babhaniya and The Exporter Hub), the appreciation of the Rupee is a short-term headwind, as it slightly reduces the Rupee value of their dollar earnings, making efficient currency hedging a crucial priority. For importers (like Shiv’s Assets Group buying raw materials), this stabilization is a welcome relief against rising input costs.

3. 📈 Global & Indian Equity Markets: Broadening Rally

Global equity markets demonstrated resilience, with the rally becoming less concentrated in the US and showing a rotation into non-US and cyclical sectors.

• US Valuation Concerns: The S&P 500 continued its strong run, but investor focus shifted to the fact that the MSCI US equity index is trading at a high 12-month forward Price-to-Earnings (P/E) multiple of $\text{22x}$, close to its all-time high. This valuation stretch is prompting investors to seek better value elsewhere.

• Non-US Leadership: The MSCI World Ex-U.S. Index outperformed the US index, signaling a global equity leadership rotation. Cyclical sectors like Financials, Industrials, and Materials—highly relevant to a business like Shiv’s Assets Group—saw renewed interest due to expectations of continued easing policy uncertainty globally.

• India’s Market Outlook: Indian equities maintained their strong footing. The market sentiment remains constructive, supported by robust Q2 corporate earnings, strong festive season consumption, and continued policy support (like the GST 2.0 rollout). Sectors expected to benefit include Metals, Banking, and Auto, driven by the strong domestic economy and hopes of further improvements in the India–U.S. trade relationship.

4. 🛡️ Regulatory Focus: Stablecoin Scru

A significant regulatory development this week came from the UK rrg digital currencies, signaling a future focus on controlling digital payment systemsStablecoin Regulation: The Bank of Englanblished a consultation paper proposing a regulatory regime for sterling-denominated stablecoins (digital currencies pegged to the Pound Sterling).

• • The Proposal: Systemic stablecoin issuers would be required to hold up to 60% of their backing assets in short-term UK government debt, with the remainder held in unremunerated deposit accounts at the BoE. This move underscores the regulatory world’s intent to treat widely used digital money as a critical part of the financial system, requiring central bank oversight and liquidity arrangements in times of stress.