'If the war continue for a longer period of time, it is just a matter of time before the government will pass on some of the price increases.'
Key Points
- RBI Governor Sanjay Malhotra indicated that policy action would be required if the West Asia conflict's impact on oil prices becomes entrenched, moving beyond a transitory shock.
- Malhotra suggested that if the conflict persists, the government might eventually pass on increased crude oil prices to consumers through higher petrol and diesel pump prices.
- The RBI is adopting a data-dependent and flexible approach, ready to 'look through' temporary oil price spikes but prepared to act if inflation becomes entrenched.
- India, which imports 85% of its crude oil, faces increased imported inflation risks, with Brent crude prices having jumped 45% since the West Asia conflict began.
Reserve Bank of India Governor Sanjay Malhotra said the central bank will consider incoming data for policy actions and will be ready to look through the spike in oil prices. However, he warned that policy action will be needed if the shock from the West Asia conflict becomes entrenched.
RBI's Stance on Inflation and Oil Prices
Speaking at a conference hosted by the Swiss National Bank and the International Monetary Fund in Switzerland on Tuesday, Malhotra signalled that an increase in pump prices of petrol and diesel will have to be considered if the war in West Asia lingers on, news agency Bloomberg reported.
'If this is to continue for longer period of time, it is just a matter of time before the government will pass on some of the price increases,' Malhotra was quoted as saying.
Excise duties had been cut while State-run fuel retailers were absorbing the increase in crude prices as the conflict continues, he added.
'We have this framework of flexible inflation targeting, but in such times, it's not sufficient,' he said, commenting that fiscal coordination becomes critical 'if the supply shock is as big as it is.'
Impact of West Asia Conflict on India
Iran and the US have rejected each other's terms for an agreement to end the war.
India imports about 85 per cent of its crude oil requirement and a sharp rise in crude oil prices will increase imported inflation.
Brent crude prices have jumped 45 per cent to $107 per barrel since the West Asia conflict began on February 28.
'We are being more and more data dependent. We are taking it more meeting by meeting,' Malhotra said.
The RBI is being flexible in its approach and is ready to look through the shock if it is transitory, 'but if it is entrenched, we need to take action,' Malhotra said.
After lowering the policy repo rate by 125 bps in 2025 the RBI Monetary Policy Committee (MPC) maintained the status quo in February and April policy this year, while staying with the 'lower for longer' rates narrative.
The next meeting of the MPC is scheduled from June 3 to 5, and the decision will be announced on June 5.
Government Measures and Economic Indicators
The RBI governor's comments comes days after Prime Minister Narendra Modi appealed for citizens to refrain from spending on non-essential foreign travel and gold purchases, and reduce the usage of fossil fuels by working from home, using public transport, or switching to electric vehicles, to preserve foreign exchange reserves.
India's foreign exchange reserves were at $690.7 billion for the week ended 1 May, 2026.
Reserves are hovering around the $700 billion mark for almost last two years as the central bank heavily intervened in the foreign exchange market to curb undue volatility.
The Indian unit has come under pressure following the West Asia conflict depreciating close to 5 per cent.
On Tuesday, the government hiked gold and silver import duties to 15 per cent from 6 per cent to curb imports.
India's inflation edged up to 3.48% in April from 3.40% in March, coming in lower than expected as the government absorbed higher crude costs.
RBI has projected CPI inflation for 2026-2027 at 4.6 per cent and real GDP growth at 6.9 per cent.
Feature Presentation: Rajesh Alva/Rediff
