Sustained rupee depreciation may escalate inflation: Fitch

**New Delhi:**Global rating agency Fitch todaywarned that sustained depreciation of rupee will put pressureon inflation which has starting showing signs of moderation inrecent weeks.

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“Moreover, the Indian rupee weakened to an all-time lowagainst the US dollar of around 52 in November 2011 … thislevel could give a further upward kick to inflation in 2012and complicate policy management still further,” Fitch said in

its special report.

Both China and India face a combination of slowingactivity and stubbornly high inflation, underlining the risksthat can arise from allowing inflation to rise above desiredranges, the report titled ‘Resilience in Global Uncertainty,and Strengthening Emerging Asia Ratings Momentum’ said.

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Fitch has revised its forecast for India’s growth in2012-13 to 7.5 percent, from 8.2 percent, as inflation andmonetary tightening are weighing on investment.

The Reserve Bank of India raised its key policy rate by2.25 percent over 2011 to 8.5 percent, although this stillleft the rate negative in real terms against headlinewholesale price inflation of 9.1 per cent in November, itsaid.

India is constrained by negative real interest rates andthe high public deficit and debt burden, it said.It also noted that India and Sri Lanka are the only

emerging Asian countries to run deficits on “basic balance”(the current account plus net foreign direct investment).

This structural weakness may help explain why the Indianrupee fell to a record low against the US dollar in December2011, while Sri Lanka devalued its currency in November, itsaid.

PTI