New Delhi: a decline in rupee value may not put additional pressure on the already high inflation and interest rates, the Indian currency will reach the level of Rs 70 compared to the U.S. dollar, global banking major Credit Suisse has said.
In a research note the rupiah, Credit Suisse said the massive depreciation of Indian currency by 16 percent since the end of July is more concerned about the surge in inflation and interest rates.
Noting that it was tempting to believe that the decline in the wholesale price of the currency would have a devastating impact on inflation, said: "We very much doubt it. While the rupee has softened dramatically as the most international commodity prices."
He dismissed the popular notion that higher inflation would increase the rupiah, already in double figures for more than eighteen months now, raising the cost of imported goods.
"Indian rupee would be needed to reach 70 against the U.S. dollar in order to prevent goods price inflation continues to decline," Credit Suisse said.
Credit Suisse announced that inflation will fall from 6.5 percent in March is less than the Reserve Bank of India's projection of 7 percent.
Indian rupee depreciated currency is the fourth highest in the world and the most worn-Asian continent.
Earlier this week, rupee hit an all time low of Rs 52.73 against the U.S. dollar, as investors exited riskier emerging market assets and the euro area, and made their contribution to the dollar - which is considered a "safe heaven" at times of crisis.
Although there has been some recovery in the past two days, but it is still below the 52 level.
A weaker rupee is a cause for concern in India, because it's reliance on imports for more than 70 percent of its oil and gas requirements, and the depreciation in the local currency has made imports more expensive.
Credit Suisse believes that a weaker rupee can be expected to add more than two percentage points to inflation, assuming that everything else is "unchanged".
"It is noteworthy, however, does not change anything. In particular, the U.S. dollar-denominated commodity prices have fallen to" Credit Suisse said.
The report also notes that the rupiah-denominated commodity prices, inflation has been halved from 40 to 20 percent and dropped to 3 percent by March 2012 - At the end of the current fiscal year.
"While the overall WPI index relationship is not perfect, not bad, and very clearly shows that the risk rate of WPI is the downside of the title," the report added.
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Articles Source:- http://economictimes.indiatimes.com/news/economy/indicators/rupee52-not-enough-to-push-inflation-interest-rates-higher-credit-suisse/articleshow/10855868.cms
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