Morgan Stanley expects oil prices to rise
New Delhi: Leading global investment bank Morgan Stanley expects the RBI to raise interest rates again if the price of crude oil rises to $110 as it will lead to increase in inflation and widening of the country’s current account deficit.
Since India imports more than 80 percent of its crude oil, the country’s economy is susceptible to rising crude oil prices. A $10 increase in oil prices increases inflation by 50 basis points and increases the current account balance by 30 basis points, Morgan Stanley reports.
“Oil above $110 a barrel would be destabilizing for India’s economy, resulting in higher domestic fuel prices and second-round inflationary effects,” the investment bank said. The current account deficit is also likely to exceed the comfortable level of 2.5 per cent of GDP, the report said.
Morgan Stanley economists led by Chetan Ahya wrote in a note on Sunday, “With macro stability indicators under this scenario, we think currency depreciation pressures may increase and the Reserve Bank of India may again have to adjust its rate hike cycle.” “Can be motivated to start.”
RBI has kept its policy rate unchanged this year as it does not want to harm growth by any increase in interest rates. However, the central bank’s policy is based on crude oil price at $85 per barrel in the second half of the current financial year.
Morgan Stanley believes that if oil prices remain at $95 per barrel, the Indian economy will remain manageable and the RBI will not have to increase interest rates.
India’s crude oil imports as of November 2 averaged $87.09 per barrel, while the average for the entire month of October was $90.08 per barrel.
The Morgan Stanley report also said that in the upcoming elections, the main risk to India’s financial markets is the emergence of a weak coalition government, resulting in a shift towards redistribution policies at the expense of a focus on boosting capital expenditure. can be done. “Implementing supply-side reforms.”
