Petrol and diesel prices in India could jump as much as ₹20 per litre
as global crude oil prices hover at record highs amid deepening
Russia-Ukraine conflict, an HDFC Bank research report said on Tuesday.
However, oil marketing companies are unlikely to pass on the entire
increase to consumers, as the authors of the report expect the Union
government to slash excise duty.
The May contract of Brent futures on the Intercontinental Exchange
(ICE) closed at $123.21 per barrel on Monday after touching $139.13,
the highest since 2008, amid fears of a complete ban on Russian oil by
the US and European Union.
In early deals on Tuesday, the contract was at $126.28 a barrel, up
2.49% from its previous close. The April contract of West Texas
Intermediate (WTI) rose 1.68% to $121.41 per barrel.
“We expect an upward revision in pump prices as the current crude oil
prices levels would warrant an increase of about ₹15-20 per litre.
However, the entire increase is unlikely to be passed on to the
consumers and we expect at least 50% of this to be cushioned by a cut
in excise duties by the government,” the report said.
The government had cut excise duty on petrol and diesel by ₹5 and ₹10,
respectively, in November 2021 and since then domestic pump prices
have remained broadly unchanged despite the rise in global prices.
A reduction in excise duties of ₹7-10 per litre on petrol and diesel
amount to a revenue loss of ₹90,000-95,000 crore for the government,
or 0.35-0.37% of GDP, the report by economists at HDFC Bank estimated.
The report also revised its inflation forecast to 5.5-5.7% for FY23
from 4.9%, assuming that the government will only pass 50% of revised
prices to domestic pumps and that global oil prices would remain at
$110 per barrel in the first quarter of FY23.
“With oil prices already up by about 30-40% from November’21 levels
and assuming impact from higher international prices of food grains,
LNG and Coal, and other input costs (metals, etc.) the increase in
headline inflation could be close to 60-80bp from our previous
forecasts,” the report added.
The report added that it expects the rupee to trade at 76.30-77.10 per
US dollar if there is no direct ban on Russia’s energy exports.
“The LIC IPO was acting as a support for the rupee and with the
increasing likelihood that this might be delayed, the USD/INR pair
could come under renewed pressure. We expect RBI to intervene actively
and try and break any sharp volatile movements in the rupee,” the
report stated.
The Reserve Bank of India is likely to maintain its accommodative
monetary policy stance in the near term, the research report said,
adding that it expects any change in both the repo and reverse repo to
come only in H2 2022.
The central bank is also likely to actively manage both bond yields
and the rupee during instances of high market volatility, the report
added.
