Commerzbank analysts Charlie Lay and Moses Lim note that India’s February flash PMIs show continued expansion in both services and manufacturing, with robust domestic and external demand supporting hiring and confidence. Despite this, USD/INR rose on the day and week, leaving INR the weakest Asian currency year‑to‑date. The bank attributes INR softness to capital outflows and strong Dollar demand from importers.

Robust PMIs contrast with weak currency

"Overall, the February flash PMI report suggests that both services and manufacturing firms remain in a strong expansion phase. However, the drivers diverge. Service providers are benefiting from stronger external demand, while manufacturers are seeing stronger domestic demand due to the GST"

"Looking ahead, external demand for manufacturers is expected to improve as the trade deal with the US will lower tariffs to 18% from 50%. This is expected to benefit the labour-intensive manufacturing sector, which should also support employment."

"In FX, USD-INR rose 0.3% to 90.98 last Friday and the pair rose 0.4% for the week. INR is the weakest performing Asian currency this year on continued capital outflow and strong dollar demand from importers. Year-to-date, INR is down 1.2% vs USD compared to the average of Asian currencies ex-Japan of +0.6%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)