Morgan Stanley On Rate Hike: Due to the global political crisis, if the prices of crude oil rise and cross $ 110 per barrel, then it may cause a blow to the economic stability of India, after which banking Sector regulator Reserve Bank of India may have to increase its policy rates due to which interest rates may become expensive. Morgan Stanley has said these things in one of his notes.
Morgan Stanley economists led by Chetan Ahya wrote in a note that India is the third largest country in the world in terms of oil consumption. If there is a rise in the prices of crude oil, then it may have the biggest impact on India in the whole of Asia. It was said in the note that if the price of crude oil increases by $ 10 per barrel, then the inflation rate may increase by 50 basis points and at the same time the current account deficit may increase by 30 basis points.  ;
According to the note, if the price of crude oil goes above $110 per barrel, the stability of the Indian economy may get a shock. There may be a rise in the prices of fuels like petrol and diesel and an increase in inflation may be seen. Current account deficit may also remain above 2.5 percent of GDP.
According to Morgan Stanley’s note, the base case for crude oil is $95 per barrel and if it remains at this level, things will remain favorable in the economy. But if such a situation occurs, there may be a delay in the decision of any kind of reduction in interest rates by RBI.
On May 4, 2022, RBI started the process of increasing the policy rates for the first time and till February 2023, the repo rate was increased six times and it was increased from 4 percent to 6.50 percent. Retail inflation rate has come close to 5 percent in September 2023. But RBI wants to see it at 4 percent and only then there will be any possibility of cutting interest rates.
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