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Surge in crude oil can impact macro-economic stability: RBI study
Why is it in the news?
- The RBI study warn that sudden surge in crude prices can upset the nation’s key macro-stability parameters.
- The surge can sharply spike the current account deficit (CAD), inflation and the fiscal numbers, whittling the benefits of higher growth.
More in the news
- Since the country is heavily dependent on oil imports to the tune of over 80 per cent for meeting its domestic demand, it remains susceptible to global crude price shocks.
- Besides CAD, rise in crude prices can also impact inflation and fiscal deficit, says the report.
- According to the researchers, an increase in international crude oil price by $10/barrel will impact headline inflation by 49-58 basis points.
- The international crude prices increased by around 12% between April and September 2018.
- However, since mid-November 2018, crude prices have declined significantly, but remain volatile.
- Further, if the government decides on a zero pass-through to the final consumers, a USD 10/barrel spike in crude prices could increase the fiscal deficit by 43 bps.
- This zero pass-through scenario allows us to put an upper band on the amount of fiscal slippage, report adds.
Source
The Hindu.