Weak rupee may not hurt consumer prices: Credit Suisse

MUMBAI: Weak rupee may have a limited impact on consumer prices though it could slow growth, notes a report by Credit Suisse. This would be the case for all major Asian currencies which have weakened against the dollar.

All major currencies in Asia have depreciated sharply against a strong US dollar over recent weeks, leading some to fear that higher consumer price inflation will be the next problem to confront local equity (and bond) markets.

"In our view, however, the upside inflation risks are minimal at this stage. The good news (for inflation) is that US dollar denominated commodity prices have tumbled more sharply than most Asian

currencies." said the report by Credit Suisse. " This is particularly pertinent for energy and, to a lesser extent, food CPI inflation which are the key drivers of the overall headline rate in Asia."

On the basis of current exchange rates and commodity prices, inflation is likely to bottom during the second quarter, but the subsequent pick-up looks set to be very modest. " Everything else is not unchanged as US dollar denominated commodity prices have taken a tumble." it said. The Brent oil price, for example, has fallen the best part of 8% since February, while the CRB food and metal price indices are down 6% and 7.6%, respectively, over the same period and 16% and 19% since July.

Rather than a strong pick-up in inflation, Credit Suisse says that that the bigger problem the trade dependent economies of the region are likely to face is slowing sequential GDP growth.