Use forex reserves to check inflation - SP

Posted 07 9 2008 1:34PM

NEW DELHI (Reuters) - The Samajwadi Party (SP), whose support appears crucial for the survival of the government, wants the ruling coalition to use the country's foreign exchange reserves to check the depreciation of the rupee and inflation.

The party has stepped in to fill the void left by communist allies of the Congress party-led ruling coalition, who finally walked away on Tuesday angry over the government's decision to forge ahead with a nuclear energy deal with the United States.

SP General Secretary Amar Singh, a key intermediary in negotiating support for the government, told Reuters in an interview on Tuesday it was the finance minister's prerogative to fix the exchange rate, and not that of the central bank.

"The government should act immediately to bring the exchange rate back to 39 rupees to a dollar. This measure alone would bring down inflation by 2-4 percentage points in a very short time," Singh said.

The rupee closed at 43.26/27 per dollar on Tuesday.

Asked whether his party backed the idea of selling stakes in public sector firms, Singh said: "If we are logically told and convinced, we can be on board."

Inflation raced to its highest in more than 13 years in June, to above 11 percent as a hike in state-set fuel prices fed into the economy.

The communists are expected to approach the president on Wednesday seeking a vote in the lower house of parliament in which the government and its new ally would have to prove their majority.