Crude at $100 likely to push CPI by 60 bps, delay rate cut

THE PROBABILITY OF Brent crude price touching $100 a barrel in the backdrop of escalation of tensions in West Asia and remaining at that level in the near term could seriously alter key macro indicators.

- PRIYANSH VERMA ARUNIMA BHARADWAJ

According to an FE analysis and estimates by economists, crude at $100 could push up CPI inflation by 60 basis points (bps) from the RBI estimate which pegged oil at $85, assuming full pass-through to retail consumers of auto fuels. It could also inflate the oil import bill by $2.5-3 billion and increase fertiliser subsidy for FY25 by at least 5% from the Budget estimate of 1.64 trillion.

Oil around $100 could likely delay the beginning of the rate cut cycle by the Reserve Bank of India (RBI). "If crude oil prices sustain higher than $100/bbl, it can delay monetary policy easing beyond Q3FY25," said Dhiraj Nim, economist, ANZ Banking Group.

A $100/bbl price of crude, or India's crude oil basket, will lead to a rise in inflation, decline in growth and widening of both current account deficit (CAD) and fiscal deficit, say economists.