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Last updated: 18 Apr, 2024  

Inflation.9.Thmb.jpg Escalation of Iran-Israel conflict to impact inflation, oil price, interest rates in India: Acuite Ratings & Research

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IANS | 18 Apr, 2024
The price of crude oil would breach $100, the central bank may delay cutting the repo rate over uncertainty over disinflation, exports to West Asia may be affected and an increase in shipping costs are some of the likely impact if the conflict between Iran and Israel escalates, said a top economist at Acuite Ratings & Research.

"With the drone and missile attacks on Israel by Iran, there is a perceptible increase in the geo-political risk quotient, imparting higher uncertainty to the global economic outlook. Although crude oil prices are yet to rise sharply beyond $90 per barrel, there is a significant likelihood that it will breach the $100 level if the conflict intensifies further over West Asia," Suman Chowdhury, Chief Economist and Head-Research, Acuite Ratings said.

According to him, the US Federal Reserve and Reserve Bank of India (RBI) would delay cutting the interest rate owing to the increased geopolitical risks and uncertainty on disinflation.

Further, there will be higher under-recoveries for the public sector oil companies in India if the increase in crude prices are not passed on to the consumers of petrol, diesel and LPG.

"The oil subsidy bill is likely to be above the interim budget for FY25. If the price rise is sustained, there is also a likelihood of pass-through after the elections," Chowdhury said.

Similarly, the prices for oil derivatives are likely to rise, impacting the operating margins for sectors like petrochemicals, speciality chemicals, and paints.

In the area of exports-imports, the escalation in conflict will result in increase in shipping costs for imports pushing up the wholesale inflation; merchandise exports to West Asia might slowdown.

"While we have a forecast of 6.7 per cent and 5.0 per cent for GDP growth and retail inflation in FY25, these can become vulnerable to revisions if the Iran - Israel conflict escalates further," Chowdhury added.

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