Lower oil price assumption to have favourable effect on inflation projections
Due to the change in key macroeconomic and financial variables over the past six months, the RBI has made revisions in the baseline assumptions for projections.
MUMBAI: The Reserve Bank of India’s decision to lower oil price assumption is likely to have favourable effect on inflation projections. The central bank has assumed the crude price at $85 a barrel from $95 a barrel earlier.
Due to the change in key macroeconomic and financial variables over the past six months, the RBI has made revisions in the baseline assumptions for projections. “Taking into account these developments, crude prices (Indian basket) are assumed at $85 per barrel in the baseline as compared with $105 in the September MPR (Monetary Policy Report) September 2022 baseline,” said RBI in its recent Monetary Policy report.
“Taking into account these factors and assuming an annual average crude oil price (Indian basket) of $85 per barrel and a normal monsoon, CPI inflation is projected to moderate to 5.2 percent for 2023-24; with Q1 at 5.1 percent; Q2 at 5.4 percent; Q3 at 5.4 percent; and Q4 at 5.2 percent,” it added.
Several experts have earlier said that there was a need to revise assumption for crude oil as prices did not move up in the past. The average price of India’s crude oil basket in March was $78.54 a barrel, down from $82.28 in February, according to data from the government’s Petroleum Planning & Analysis Cell. The September 2022 edition of the RBI’s Monetary Policy Report had assumed $100 per barrel as the average price of India’s crude oil basket for the second half of 2022-23.