War clouds darken rate cut horizon despite low inflation
Following Israel's pre-dawn missile strike on Iran on Friday, Sensex plunged 1,300 points. Iran holds about 9 per cent of the world's oil reserves, and as the strike intensified tensions in a key West Asian oil-producing region, crude prices jumped over 13 percent, with the benchmark Brent contract hitting $78.50 a barrel—its highest since January.
If tensions persist for over the next 3-6 months, it's likely that crude prices would rise above $82-85; J P Morgan analysts expect the new perch to be as high as $120 in a worst-case scenario. Besides price rise, any disruption in global oil supplies will slow down demand, drive up inflation and exacerbate the prevailing pressure on global markets, which are already reeling under an uncertain US trade policy overhaul.
India relies on imports for over 80 percent of its crude oil needs, and a higher import bill will widen the current account deficit, which is expected at 1.2 percent of GDP this fiscal.
India also is the largest consumer of gold, which on Friday shot past the psychologically significant mark of Rs 1 lakh per 10 gram for the first time ever on MCX. So the risks of imported inflation remain elevated, just as the RBI indicated last week about a protracted disinflationary process. As it is, policymakers are grappling with global trade policy uncertainties that are threatening to spur inflation and lower global growth. If this happens, it will restrict the central bank's ability to lower policy rates any further.
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Time of India
an hour ago
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Economic Times
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