OMCs can absorb crude costs up to $90/barrel without raising fuel prices, says CareEdge's Rajani Sinha. She called the RBI's rate pause 'appropriate' amid global uncertainty, but noted that inflation risks have increased.
OMCs to Absorb Crude Costs
The oil marketing companies (OMCs) are likely to absorb higher crude costs without passing it on to consumers if Brent crude prices remain in the range of USD 85-90 per barrel, Rajani Sinha, Chief Economist, CareEdge Ratings, has said. In an exclusive conversation with ANI on Wednesday, she also termed the Reserve Bank of India's (RBI) decision to keep rates unchanged as appropriate amid global uncertainty.
She stated, "As per our analysis, if crude oil prices are around USD 85-90, the OMCs can absorb. They do not need to hike their retail prices and hence they are most probably going to absorb that price increase. But yes, if crude oil prices remain high like 100-110 dollars for long definitely then we will see the OMC passing on the increase in form of higher retail prices".
RBI's 'Wait-and-Watch' Stance
Reacting to the RBI monetary policy decision, she said this is very much on expected lines. "Given the heightened geopolitical uncertainties and global economic backdrop, it was appropriate for the RBI to remain in a wait-and-watch mode," she said, referring to the West Asia conflict and its impact on global supply chains and energy prices.
On the West Asia conflict she noted that even though a temporary ceasefire has been announced for two weeks, there is still no clarity on how the situation will evolve or how long it will take for supply disruptions to ease.
Macroeconomic Outlook and Key Risks
Moderated Growth Expectations
On the domestic macroeconomic front, she said growth expectations have moderated from pre-war levels. "Earlier, growth was expected at around 7 to 7.5 per cent, but now it is likely to be in the range of 6.5 to 6.9 per cent," she said, adding that her estimates place GDP growth at around 6.7 per cent for FY27.
Rising Inflation Risks
She also pointed out that inflation risks have increased, with projections revised upwards to around 4.6 per cent, driven not only by higher energy prices but also by second-round effects from supply disruptions and potential weather-related factors. "The impact of higher oil prices is not being fully passed on to consumers, which is why the increase in CPI inflation is relatively contained," she added.
External Sector Pressures
Sinha further noted that India's external sector is likely to face pressure, with the current account deficit expected to widen from earlier estimates of around 1 per cent of GDP to nearly 2 per cent in FY27. She said this comes at a time when capital flows have weakened, with foreign portfolio investment (FPI) outflows and subdued net FDI inflows creating a "double whammy" for the balance of payments, which is expected to move into negative territory.
Currency Outlook
On the currency front, she said much of the rupee depreciation has already taken place, and if conditions stabilise, the rupee could average around 92-93 against the US dollar in FY27.
Impact on Households
For households, she said the impact of higher crude prices may remain moderate if prices stay within the USD 85-90 range, as fuel prices may not see a sharp increase. However, she cautioned that supply bottlenecks and rising input costs, including gas shortages, could lead to broader price increases across the economy.
"Even in the best-case scenario, inflation will rise to around 4.6 per cent compared to about 2.1 per cent last year, so there will be some impact on households, though not very significant," she added. (ANI)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)