The soaring global crude prices is likely to push up the domestic inflation rate from the present 3.1% but will remain within “tolerable? limits, the Reserve Bank of India said in its annual report on Trend and Progress of Banking in India, 2007-08 released on Tuesday.
The inflation rate, which is at a 5-year low, is artificially capped because the pass-through to domestic petroleum products has not yet been effected even though global crude oil prices soared. International crude oil prices have appreciated by 53% since February this year while the administered domestic oil prices were reduced, the report observed.
“Should international crude oil prices rise further, domestic oil prices might have to be raised,?? the RBI report said. The trade deficit has widened considerably in the previous fiscal and during the first quarter of the current year, the report said. Interest rates have hardened leading to a widening spread between triple `A? rated corporate bonds and the risk-free government securities. Foreign capital inflows continue to rise resulting in a sharp accretion to foreign exchange reserves.
Accelerated gains in crude oil may also affect India’s currency and current account deficit, the report said. Current account, showed a deficit of $4.69 billion in the three months of current fiscal as against the surplus of $2.56 billion in the previous quarter.