Sunken rupee may give more steam to inflation

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By S Jha

New Delhi, September 22: Rupee on Thursday broke the psychological barrier to sink to a record low of 80.89 against the US dollar. The steep fall in rupee came in the backdrop of the hawkish commentary of the US Fed, which suggested that the inflation is yet to be tamed.

While rupee had breached the level of 80 in July also, but it had recovered slightly to stay in the 79s. But Thursday was a day of rout for the currency markets worldwide, as all major currencies sunk to their record levels.

The US Fed and the nuclear threat by Russian President Vladimir Putin acted as a double whammy for Rupee, taking to one of the lowest levels in the history, with the social media users having a field day with meme fest.

The opposition parties hit out at the ruling Bharatiya Janata Party and the Finance Minister Nirmala Sitharaman for the poor health of rupee.

With India also reeling under imported nation on the back of the runaway energy costs, India’s import bills of the crude oil could further balloon. Additionally, India is massively importing coal and gold also, which may further put burden on the government with the outgo of the foreign currency, besides disturbing the fiscal deficit situation.

The government has been seen to be stingy in not lowering taxes on the fuels, which may make petrol, diesel and natural gas more costly. With the transportation bill likely to go further up on the back of the dearer fuel costs, the vegetables, fruits and food items could become more costlier and drive inflation further upwards.

Some of the economic commentators have been arguing that Reserve Bank of India should not protect rupee, and let it fall to the level of 82 or 83 against the US dollars to help the exports become competitive.

However, a lower rupee is likely to make the middle class further face the hardships due to inflation and costlier loans.

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