The surging price of oil is an Achilles’ heel for the Indian economy, complicating its inflation, current account, fiscal balance and currency outlook, a market report by Singapore’s DBS banking group has said.
“The sharp rally in oil weighed on all asset classes; USD-INR jumped to 69.87 high before closing slightly lower, while equity markets ended in red,” said the report by economist Radhika Rao and FX Strategist Philip Wee of the DBS Group Research.
For bond markets, the worry is two-pronged with the concern being that high oil prices might pose a fresh risk to the fiscal math, if subsidies return, by extension requiring higher borrowing, said the duo.
Also, pipeline inflation risks due to high oil prices further raise the hurdle for rate-cuts.
