Indian Rupee Faces Challenge as Credit Spread Widens

May 17th, from WikiFX. India's credit spread has widened year to date, hovering around 260 basis points which can put Indian rupee in a difficult situation in the coming weeks.

Markit India Manufacturing PMI and Services PMI both hit a record low in April, at 27.4 and 5.4 respectively. A reading below 50 usually indicates shrinking business activities.

According to a survey by the Indian Economic Supervision Center (CMIE), the unemployment rate in India will reach a record high of 27.1%. In order to help the Indian economy severely affected by the epidemic, the Indian authorities have taken action in fiscal and monetary policies. To date, stimulus measures of about 1.7 trillion Indian rupees have been implemented, accounting for about 0.8% of GDP.

India's credit spread has widened year to date, hovering around 260 basis points. This credit spread is basically the difference in yield between Indian AAA corporate bonds and the sovereign government bonds of the same level.

With rising global economic uncertainties and the possibility for India to lift social distancing measures, the Indian rupee may face difficulties in the coming weeks.