Oil Prices and Indian Economy
Oil prices are back in the news as OPEC+ has decided to decrease oil production, which means oil prices may increase from the current levels. How does it affect investors?
Current Account Deficit: For every $10 per barrel increase in the price of the Indian crude oil basket, the CAD could widen by $14-$15 billion, or 0.4% of GDP.
Rupee exchange rate - we have seen the rupee falling below 80 and increasing crude oil prices can take it down further.
Rise In Inflation:International Energy Agency has said that a 10% increase in crude oil prices in India will lead to an increase in the Wholesale Price Index (WPI) by nearly 0.9%.
Falling forex reserves: To reduce rupee depreciation, RBI has to sell forex reserves.
Growth concerns: With increasing crude oil prices, inflation will increase, and to control inflation, the RBI will have to increase the interest rate. It will lead to lower spending, and hence the country's growth will come dow