Its time to speak about inflation as yesterday’s inflation data eases little bit from
its all time peak 11.91% to 11.89% during the week ended july 12,marginally
lower than the previous week annual rise.
There is a direct link between exchange rate and inflation. Assume
that suppose exchange rate decreases from Rs 43/dollar to 40/dollar.
Then the price of the imported product that cost $1000 cost us only Rs
40,000 rather than paying 43,000. So Rs 3000 or nearly 7.5% of your
money got saved if rupee appreciates. Very simply, rupee appreciation
will combat rising inflation.
But rupee appreciation will definately affects Indian exporters
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sentiment, Because all the transactions are done via exchange rates
and done with respect to dollar basis. So it means their revenue i.e
the foreign payments made to them will sink 7.5%. But our finance
minister is definately tell you that low and stable inflation is more
important than exporters worries . So RBI has focused on the
exchange rates and has been unconcerned about the inflationary
consequences of these policies. So RBI will use exchance rate as a
tool to moderate inflation.
Also reducing crude oil factors rupee appreciation which is evident
from recent appreciation from 43.30/dollar to 41.96/dollar in days due
to sudden decline in crude oil prices. And also rising factors rising
inflation and vice versa. So crude oil is one of the dependent factor
related to inflation and exchange rates.
Regards,
Rajandran
Author – Marketcalls
Article composed and posted via my Sony Ericsson mobile phone – K550i
