Prolonged West Asia crisis could lead to higher fuel prices: RBI Governor Sanjay Malhotra

Reserve Bank of India (RBI) Governor Sanjay Malhotra has said that a prolonged crisis in the Middle East could lead to higher fuel prices in India. The government has followed fiscally prudent policies, so it is “only a matter of time” before higher oil prices are passed on more fully to consumers, he said, while underlining the need for coordination between the country’s fiscal and monetary policies.

His remarks come at a time when the West Asia crisis is in its 11th week and days after Prime Minister Narendra Modi urged citizens to avoid unnecessary travel and, where possible, work from home as part of a broader appeal to conserve foreign exchange.

Stating that the RBI decided ⁠to wait and watch in its April review, the RBI governor said the monetary ​policy will need to remain ​"nimble" ⁠and "flexible". He also said the central bank is being more and more data-dependent.

Dalal Street eked out mild gains on Wednesday in some respite for investors after benchmark indices tumbled about four per cent each in the past four days. The Sensex rose 49.7 points to close at 74,609 while the Nifty50 settled with a gain of 33.1 points at 23,412.6. Until Tuesday, the Sensex had lost nearly 3,400 points -- or 4.4 per cent -- while the Nifty50 gave up around 950 points -- or 3.9 per cent -- since May 6.

PM Modi's 7 broad appeals to citizens

Speaking in Hyderabad on Sunday, Prime Minister Narendra Modi had said that the need of the hour is to use petroleum products like petrol, diesel and gas with "great restraint".

The country has endured the West Asia crisis due to its conscious efforts in the energy space, including its renewable energy drive, "unprecedented work" in ethanol blending in petrol, first 100 per cent LPG coverage and now cheaper piped gas and the promotion of CNG-based systems, he said.

The PM emphasised that imported energy products must be used only as much as needed. "This will save foreign exchange and also reduce the adverse effects of the crisis of war," he said.

He urged the public not to buy gold for weddings for a year.

Here are seven broad areas mentioned in PM's appeal:

• Reduce petrol and diesel consumption: use Metro or public transport when possible
• Cut down the use of cooking oil
• Prioritise work from home (WFH) wherever possible
• Avoid buying gold for a year
• Use fewer foreign-branded products and adopt 'swadeshi'
• Avoid foreign travel for one year
• Cut dependence on chemical fertilisers (move toward natural farming)

He also emphasised that without energy, everything comes to a halt in the 21st century world. "Every person today feels the importance of energy security," he said.

The PM also said that his government is making unprecedented investments in the country's energy security.

Meanwhile, official data released on Tuesday showed consumer inflation worsened to 3.48 per cent in April from 3.40 per cent in the previous month.

Food inflation moved up to 4.20 per cent during the month as prices of tomatoes, cauliflower and precious jewellery remained elevated.

However, the CPI reading indicated that inflation remained within the RBI's comfort zone of 2-6 per cent. The central bank primarily tracks retail inflation data to formulate monetary policy.

Noting that inflationary pressure is not visible yet, BofA Securities said it continues to expect a cumulative hike of 50 basis points in benchmark interest rates starting December. It also mentioned that minutes of the RBI's April policy review, released on April 22, echoed a cautious tone.

At the bi-monthly review, the RBI governor-led Monetary Policy Committee kept the repo rate ​unchanged on Wednesday while cautioning against lower growth and higher inflation in light of the Middle East crisis. Many financial experts have warned that the West Asia war could raise inflationary risks for India, mainly via higher energy, fertiliser and logistics costs.

India meets about 90 per cent of its oil requirement through imports.