Millennium Post

Depreciating rupee to inflate prices of manufactured goods

Falling value of rupee is likely to further push up prices of manufactured goods and other commodities, adding to the woes of common man reeling under double-digit retail inflation, said experts.

'There will be an impact on inflation... five per cent depreciation in the rupee will fuel local inflation by 15-20 basis points,' Abheek Barua, chief economist, HDFC Bank said.

The declining value of rupee, which has depreciated by 11 per cent against dollar since March, will directly push up the cost of crude oil and other imported commodities used as input in manufacturing process, said other exports.

'Inflation is already a problem, and it is getting aggravated because of rupee. This leads to costlier imports and increase in prices of manufactured items as input cost goes up,' said Brinda Jagirdar, economist with the State Bank of India (SBI).

Week rupee, she added, 'will feed into inflation. We should get back the rupee to the fair value by increasing supply of dollar'.

'The government should reduce dependency on oil, and reduce the current account deficit (CAD) to three per cent of the GDP... besides few other steps to check inflation in the long run,' D K Joshi, chief economist, Crisil, said.

Retail inflation shot up to the double digit mark at 10.36 per cent in April on account of substantial increase in vegetable, edible oils and milk prices. Worried over the impact of high global crude oil prices on the domestic economy, finance minister Pranab Mukherjee, had asked C Rangarajan, chairman of the Prime Minister's Economic Advisory Council to suggest ways to reduce import of crude oil.

He had also expressed concern over rising current account deficit, which is estimated to have risen to 4 per cent during 2011-12 from 2.7 per cent a year ago. In order to deal with the problem of falling rupee on the petroleum sector, Jagirdar suggested that RBI should open special window for oil marketing companies to sell them dollar directly to fulfil their obligation of crude oil payments.
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