Rising crude brings an unlikely relief to RBI on forex intervention

A rise in global crude oil prices usually brings with it a host of problems for the Reserve Bank of India (RBI). The outlook for domestic inflation worsens because of imported inflation and the current account deficit also widens given the increase in the oil import bill. Ergo, the central bank is loath to see rising oil prices and it should be.

However, there is an unlikely benefit from rising crude oil prices in the present context.

So far, the central bank has been battling the flood of foreign investment inflows into India, especially when the current account is in an unwelcome surplus. Since the economy’s capacity to absorb dollars is limited, the RBI has incessantly mopped them up through its interventions in the foreign exchange (forex) market.