RBI paper says further fall in crude oil to bode well for inflation outlook
This story was originally published at 19:08 IST on 22 April 2025
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MUMBAI – Any further fall in crude oil prices augurs well for India's inflation outlook, the Reserve Bank of India said in its monthly bulletin Tuesday. International crude oil prices exhibited a declining pattern during Oct-Dec, hovering around $74 per barrel on account of relatively modest growth in global oil demand as well as robust supply from exporters outside the Organization of the Petroleum Exporting Countries.
According to a survey of professional forecasters by the RBI in March, India's CPI inflation is projected to decline to 3.9% in Jan-Mar of the financial year 2024-25 (Apr-Mar), from 5.6% in Oct-Dec. The forecasters expect CPI inflation to remain around 3.9-4.0% till Oct-Dec of FY26 before rising to 4.5% in Jan-Mar of FY26.
If crude oil prices fall by 10% relative to the baseline of $70 per barrel and if the drop in prices is passed through to domestic product prices, inflation in India could be lower by around 30 basis points, with a boost of 15 basis points to India's real GDP growth, the report said. Global crude oil prices are on a downward trend, with Brent crude prices falling to an average of $73 per barrel in March from a high of $82 per barrel in early October.
Crude oil prices gradually declined in February and fell to their lowest level in March owing to the announcement of a production increase by OPEC along with reduced geopolitical risk premiums and adequate inventory. "Considering these factors, the baseline assumption for crude price (Indian basket) is reduced to $70 per barrel during 2025-26," according to the RBI bulletin.
The projection is based on assumptions that the rupee will trade at INR 86 to the dollar, the monsoon will be normal in FY26, global economic growth in 2025 will be 3.1% and 3% in 2026, and the country's fiscal deficit will remain within budgetary estimates.
The baseline forecasts are subject to several upside and downside risks. The upside risks emanate from continuing geopolitical conflicts and resultant supply disruptions, volatility of energy prices, and adverse weather events. The downside risks could emanate from an early resolution of geopolitical conflicts, adherence to fiscal consolidation and debt paths, further correction in global crude oil and commodity prices in case of slowing global demand, and improvement in supply conditions. End
US$1 = INR 85.19
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Ashutosh Pati and Sandeep Sinha
Edited by Rajeev Pai
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