Wednesday, June 25, 2008

Indian rupee continues to slide

Indian woman harvesting grass for livestock feed
Spiralling prices are threatening to stifle India's economic progress

The Indian rupee has continued to slide in value against the US dollar amid concerns that high oil prices will stoke inflation in the economy.

The Indian currency is down 8% against the dollar this year as the soaring cost of oil has eaten into household budgets and hit the trade balance.

Wholesale prices in India, which imports 75% of its oil, are rising at their sharpest rate in 13 years.

Separate data seen by the BBC suggests inflation is higher than thought.

'Difficult times'

One dollar was worth 42.972 rupees on Monday, up from 42.92.

Asian currencies fell across the board on Monday after global oil prices showed no signs of retreating, despite a pledge by Saudi Arabia to increase output again if necessary.

India's economy, which has enjoyed exceptional growth in recent years, is vulnerable to the soaring cost of the commodity because of its dependence on imported oil.

Hefty government subsidies designed to keep fuel prices down have hit the public finances, while the higher cost of importing oil has hurt India's balance of payments.

Finance Minister Palaniappan Chidambaram recently admitted that there were more "difficult times" ahead for the economy.

Wipe out gains

Indian government data obtained by the BBC has revealed the full impact of price rises there.

It was announced last week that inflation had hit more than 11%, its highest level in 13 years.

But official statistics from the Ministry of Consumer Affairs say wheat and onion prices have risen by some 50% in many smaller cities since January.

Politicians have warned that inflation is threatening to wipe out gains made in the struggle against poverty.

The cost of rice has shot up by more than 40%, the statistics say.

The Reserve Bank of India raised its key lending rate by a quarter point to 8% earlier this month and officials have indicated that a further increase could be imminent.

But some economists believe it has been slow to address the inflation threat, given that prices are rising at their fastest level since 1995.

The less optimistic outlook has hit investment in India's stock market with official figures showing foreign fund managers have sold $5.3bn worth of shares and bonds this year.

This contrasts with $19.5bn worth of purchases last year.

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