An SBI Research report says the Indian Rupee is at a critical level. Any further depreciation could completely offset the gains from the recent Rs 3 per litre fuel price hike, which was aimed at reducing massive losses for Oil Marketing Companies.
The Indian Rupee has reached a critical level where any further depreciation could wipe out the gains from the recent Rs 3 per litre increase in petrol and diesel prices, according to an SBI Research Ecowrap report.
The report warned that "even an additional depreciation of Rs 2 in the Rupee raises the effective crude oil price, pushing the landed import cost, which fully offsets the gains from the current fuel price hike."
OMCs Face Mounting Losses
The SBI Research report said the recent fuel price hike was aimed at reducing losses faced by Oil Marketing Companies (OMCs) due to elevated crude oil prices and unchanged retail fuel prices.
"OMCs' under recoveries on sales of petrol and diesel are soaring because of unchanged retail prices," the report said. It added that OMCs are "incurring losses to the tune of Rs 1000 crore per day, which amounts to around Rs 3.6 lakh crore a year."
According to the report, the Rs 3 per litre increase in fuel prices is expected to provide relief of around Rs 52,700 crore to OMCs, covering only around 15 per cent of their estimated FY27 losses.
Rupee Depreciation and Broader Risks
Highlighting the pressure from currency weakness, the report said, "the Rupee has already approached a critical depreciation threshold, beyond which further currency weakness could substantially erode the intended benefits of domestic fuel price revisions."
The report estimated that, assuming an average FY27 exchange rate of Rs 94 per US dollar and crude oil prices at USD 106 per barrel, the landed crude oil cost works out to nearly Rs 9,964 per barrel. It said the Rs 3 fuel price increase provides a benefit of around Rs 477 per barrel to OMCs, but a further Rs 2 depreciation in the Rupee significantly raises import costs.
SBI Research also said India needs a broader strategy to manage external sector risks. "There is a need for a comprehensive policy on balance of payments," the report said.
Global Pressures on Crude Oil
The report further noted that global crude oil markets remain under pressure amid disruptions in the Strait of Hormuz due to the ongoing West Asia conflict.
"As per the latest IEA report, crude will continue to remain under pressure owing to the depleting inventories," the report said. The report added that shipments through the Strait of Hormuz have declined sharply in recent months, impacting both crude oil and LNG flows.
Impact on Inflation
On inflation, SBI Research said the fuel price hike may have an immediate impact of around 15-20 basis points on Consumer Price Index (CPI) inflation during May-June 2026 and revised its FY27 inflation forecast to 4.7 per cent. (ANI)
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