Reserve Bank of India Governor Shaktikanta Das has said that the central bank forecasts crude oil price at $100 per barrel in FY23.

The number – spelt out by Das on April 7 while detailing the Monetary Policy Committee’s (MPC) latest decision – is a substantial upward revision from what was previously assumed. The October edition of the Monetary Policy Report revealed the RBI had assumed a price of $75 per barrel for the second half of FY22 while making its forecast for Consumer Price Index (CPI) inflation.

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However, the average price of India’s crude oil basket was $88 per barrel in October 2021-March 2022, with Russia’s invasion of Ukraine resulting in a sharp increase in global commodity and energy prices. In fact, the price of India’s crude oil basket surged 20 percent month-on-month in March to $113 per barrel, according to data from the Petroleum Planning and Analysis Cell.

As a result of a higher crude oil price assumption, the RBI’s statistical model has made a sharp upward revision to the inflation forecast. The central bank now sees CPI inflation averaging 5.7 percent in FY23, up from 4.5 percent forecast in February. The quarterly forecasts are as follows: 6.3 percent for April-June 2022, 5.8 percent for July-September 2022, 5.4 percent for October-December 2022, and 5.1 percent for January-March 2023.

If the inflation projections were raised, the RBI slashed its growth forecast for the current financial year. India’s GDP is now seen growing 7.2 percent in FY23, down from 7.8 percent forecast is February.

The RBI governor, however, warned that the forecasts were fraught with risks.

“It may, however, be noted that given the excessive volatility in global crude oil prices since late February and the extreme uncertainty over the evolving geopolitical tensions, any projection of growth and inflation is fraught with risk, and is largely contingent upon future oil and commodity price developments,” Das said in his statement.
Source: Money Control