Mumbai Feb 25 :- The renewed surge in international crude oil prices will require close monitoring as they pose a risk to domestic inflation, said the Reserve Bank of India Governor Shaktikanta Das as per the minutes of the meeting of the Monetary Policy Committee (MPC) released on Thursday.
We need to remain watchful of the risks to domestic inflation arising from rise in international commodity prices due to exogenous factors including geo-political developments,” Das said in the MPC meeting held on February 10. The panel kept the key policy rates unchanged in the review.
Das said high commodity prices and supply side shortages could weigh on corporate profitability amid weak pricing power and unfavourable base effects during 2022-23. “The global financial market volatility associated with monetary policy normalisation process in the advanced economies could further complicate the situation,” Das said.
MPC said the outlook for crude oil prices is rendered uncertain by geopolitical developments even as supply conditions are expected to turn more favourable during 2022. MPC has set an inflation target of 4.5 per cent for fiscal 2022-23.
According to MPC minutes, global financial market volatility, elevated international commodity prices, especially crude oil, and continuing global supply-side disruptions pose downside risks to the outlook. “The potential pick-up of input costs is a contingent risk, especially if international crude oil prices remain elevated,” MPC said.
“Global risks include high oil prices, rising inflation and interest rates in major countries and possible volatility in foreign capital outflows,” MPC Member Ashima Goyal said.
According to MPC Member Mridul K. Saggar, Indian crude oil basket is up nearly 25% in the previous two months. The current geopolitical stress in Europe is a significant risk and if it translates into oil and gas prices spiking, we will need to adjust macro-economic policies suitably.
