RBI governor sees fuel price hike if Iran conflict persists:Sanjay Malhotra says entrenched inflation will require action

RBI Governor Sanjay Malhotra has said that India may have to increase retail fuel prices if the conflict in West Asia drags on, warning that sustained higher crude oil costs could eventually be passed on to consumers, news agencies Reuters and Bloomberg reported. Speaking at a conference hosted by the Swiss National Bank and the International Monetary Fund in Switzerland on Tuesday, Malhotra said the government’s fiscally prudent approach meant it was “only a matter of time” before rising global oil prices were reflected in domestic petrol and diesel prices. “If this continues for a longer period, it is only a matter of time before the government passes on some of the price increases,” Bloomberg quoted the RBI Governor as saying. Govt absorbing higher crude costs for now The governor noted that excise duties had been reduced and state-run fuel retailers were currently absorbing the increase in crude prices as the regional conflict continues. His remarks came after Prime Minister Narendra Modi urged citizens to adopt voluntary austerity measures, including reducing petrol and diesel consumption and postponing gold purchases, to help preserve India’s foreign exchange reserves. The government has also more than doubled customs duty on gold, and further measures to curb demand for imported goods may follow. Inflation risks rising Malhotra said India’s retail inflation rose to 3.48% in April from 3.40% in March, remaining below market expectations as the government cushioned the impact of higher crude prices. He cautioned, however, that risks to the inflation outlook remain elevated as energy prices continue to climb and supply chain disruptions begin to affect the Indian economy. “We have a framework of flexible inflation targeting, but in such times that is not sufficient,” he said, adding that close coordination between fiscal and monetary policy becomes critical when supply shocks are severe. RBI watching the economy closely The RBI has projected economic growth of 6.9% in the current financial year, with average inflation of 4.6%. The central bank left the repo rate unchanged at 5.25% at its April monetary policy review, opting to assess evolving geopolitical risks. “We are becoming increasingly data-dependent and taking decisions meeting by meeting,” Malhotra said. “If the shock is transitory, we can look through it. But if it becomes entrenched, we will need to act,” the RBI Governor added. Malhotra also stressed that central banks should proceed cautiously and adopt a gradual approach amid heightened global uncertainty. The RBI’s next monetary policy meeting is scheduled for June 5.