Depreciating rupee to push up prices of manufactured goods : Global Organisation for Pravasis Urakam (GOPUR)

Published On: Sunday, May 20, 2012

Depreciating rupee to push up prices of manufactured goods

Depreciating rupee to push up prices of manufactured goods NEW DELHI: 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, say 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, D K Joshi, chief economist, Crisil, too suggested, "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." Retail inflation, based on movement in the Consumer Price Index (CPI), 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. The wholesale price-based inflation too moved up to 7.23 per cent in April. 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 (PMEAC) 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 of Gross Domestic Product (GDP) 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. On Friday, rupee plunged to its new all-time low of 54.90 per US dollar before settling at 54.42. Rupee has depreciated to record levels against the US dollar recently mainly on the back of rising dollar demand from importers, specifically from oil companies. During 2011-12, the oil import bill touched a whopping $145 billion, out of the total $485 billion of imports.

News Source, credit and thanks : Economic Times

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Posted on Sunday, May 20, 2012. Labelled under , . Feel free to leave a response

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