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Risk of Oil Shocks; claimed as a ‘Nightmare’ for the RBI

The upsurge in crude oil and edible oil prices are bound to feed into headline inflation. The Reserve Bank of India has already breached its upper tolerance limit of 2%- 6% target range.

While the RBI is blaming the supply shocks for the hike, RBI higher prices will nonetheless eat into the disposable incomes of consumers. India is yet to fully recover post the pandemic and the backbone of the economy is yet to fully start spending.

Amidst the geopolitical tension, the worldwide supply chains could force India’s central bank to raise inflation rates. The rise in crude oil could also tighten the deficit in the nation’s current account, which would strain on the already depreciating rupee. This would indeed lead to another source of imported inflation.

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