India says Europe trade group commits to $100b 15-year deal

India and a trade group of four European nations signed an economic agreement on Sunday aimed at increasing trade and investment, capping nearly 16 years of negotiations.

The deal is a binding agreement for the European Free Trade Association - Switzerland, Norway, Iceland and Liechtenstein - to invest $100 billion over 15 years in the fast-growing market of 1.4 billion people, said Piyush Goyal, India's union trade minister.

"It is a modern trade agreement, fair, equitable and win-win for all five countries," Goyal told a press conference. The deal is the result of 21 rounds of negotiation, said the head of Swiss Economic Affairs, Guy Parmelin, calling India a market of immense opportunities for trade and investment.

India in the last two years has signed trade agreements with Australia and the United Arab Emirates, and officials say a deal with Britain is in the final stages, all part of Prime Minister Narendra Modi's goal of achieving $1 trillion in annual exports by 2030.

The European group, formed in 1960 as a counterweight to the European Union, is the world's 10th-largest goods trader and the fifth-largest in services.

It has signed around 30 trade agreements with 40 countries and territories outside the EU.

The Indian government on Thursday hiked inflationadjusted pay and allowances for 11.7 million employees and pensioners by 4%, a move that is likely to cost the exchequer 128.69 billion Indian rupees ($1.56 billion) annually, a minister said.

The increases to the ‘dearness allowance’, part of monthly wages and pensions, provides a cushion against rises in the cost of living. They will be backdated to Jan. 1, 2024, trade minister Piyush Goyal said.

The decision to hike the allowances comes weeks ahead of national elections being announced where Prime Minister Narendra Modi is bidding for a rare third term in office. The federal and state governments generally announce twice-a-year adjustments in inflation-linked wages on top of an annual increment.

The Indian rupee is expected to have a choppy session on Friday, caught between bullish expectations of a US rate cut, despite a higher-than-expected rise in US consumer prices, and pegged back by the repeated failure to sustain past a key level.

Non-deliverable forwards indicate the rupee will open flat to slightly weaker to the US dollar than its close of 83.0275 in the previous session. The rupee managed to briefly climb above 83 on Wednesday and Thursday.

“It will be a choppy kind of a day, in the sense there are good reasons for a move higher or lower,” an fx trader at a bank said. “On one hand, investors remain convinced of big Fed rate cuts year, despite the US data, and on the other, we have the dips (on USD/INR) just not holding.”

Headline US consumer price index rose 3.4% year-onyear in December, compared to forecasts of a 3.2% increase. On a monthly basis, CPI rose 0.3% versus expectations of a 0.2% increase. Core CPI rose 3.9% year-on-year, against 3.8% expected. While US yields and the dollar index climbed following the data, the moves did not hold up.

The dollar index is at 102.20, having rallied to 102.75, and the 2-year US Treasury yield is down 14 basis points off the highs at 4.26%.

Indian rupee looks to keep momentum heading into US inflation data

The odds of a Federal Reserve rate cut in March are slightly higher than before the inflation data and investors now expect 150 basis points of cuts this year compared with about 140 before the data.

ING Bank pointed out that the inflation data was “just one measure” and that the CPI outlook “remains encouraging”.

“The CPI report isn’t the only inflation measure the Fed looks at. In fact, the preferred measure – the core personal consumer expenditure deflator – has shown much better performance.”