Reserve Bank of India Governor Sanjay Malhotra hinted at a possible increase in retail fuel prices if the Middle East conflict continues for a longer period.
“If this continues for a longer period, it is only a matter of time before the government passes on some of the price increases,” Bloomberg quoted the RBI Governor, on Tuesday. He was speaking at a conference hosted by the Swiss National Bank and the International Monetary Fund in Switzerland.
Excise duties had been cut while state-run fuel retailers were absorbing the increase in crude prices as the conflict continues, he added.
Govt hikes gold, silver import duty
His remarks came days after Prime Minister Narendra Modi urged citizens to cut down on petrol and diesel use. PM Modi also asked to put off gold purchases in order to preserve foreign exchange reserves. The government also increased import duty on gold and silver from 6% to 15%, effective May 13. Import duty on platinum has been raised from 6.4% to 15.4%.
Fiscal coordination crucial: RBI governor
Supply-chain disruptions because of the blockade of Strait of Hormuz are beginning to hit India. “We have this framework of flexible inflation targeting, but in such times it’s not sufficient,” he said, adding that fiscal coordination becomes critical “if the supply shock is as big as it is.”
India’s inflation edged up to 3.48% in April from 3.40% in March, coming in lower than expected as the government absorbed higher crude costs. However, risks remain as rising energy prices from the Middle East conflict weigh on the outlook.
The RBI has forecast growth of 6.9% this financial year, with inflation averaging 4.6%. However, Brokrage Crisil expects inflation to rise to 5% in FY27 due to West Asia conflict and GDP growth to slow to 6.6% in FY27.
RBI taking a ‘meeting by meeting’ approach: RBI Governor
What’s going to be the RBI’s next course of action? “We are being more and more data-dependent. We are taking it more meeting by meeting,” said the RBI Governor according to Bloomberg. The RBI is being flexible in its approach and is ready to look through the shock if it’s transitory, “but if it is entrenched, we need to take action,” Malhotra said.
The central bank’s next monetary policy meeting is scheduled for June 5. In its previous meeting in April, when the war just started, RBI kept the policy repo rate unchanged at 5.25%.
Important to note that Oil Minister Hardeep Singh Puri said at the CII Business Summit on May 12 that there is no immediate plan to raise petrol and diesel prices, stressing that India currently has around 60 days of crude oil and LNG reserves, along with about 45 days of LPG stock, and there is “absolutely no cause for anxiety.”