RBI Warns Fuel Price Hike Possible if West Asia Crisis Persists

RBI Governor Sanjay Malhotra said rising crude oil prices linked to the West Asia conflict may eventually push up fuel prices in India, while warning that persistent inflation could require policy action.

India’s retail fuel prices could see an increase in the coming months if tensions in West Asia continue to disrupt global crude oil markets, Reserve Bank of India Governor Sanjay Malhotra has warned.

Speaking at a conference hosted by the Swiss National Bank and the International Monetary Fund in Switzerland on Tuesday, Malhotra said the Indian government and state-run fuel retailers were currently absorbing the impact of higher crude prices. However, he indicated that such a strategy may not be sustainable if the geopolitical crisis drags on.

According to reports by Reuters and Bloomberg, the RBI Governor said it was “only a matter of time” before some of the increase in global oil prices was passed on to consumers through higher petrol and diesel prices.

Crude Oil Pressure

Global crude prices have remained volatile amid continuing tensions in West Asia, raising concerns for major oil-importing countries like India. The country imports more than 80% of its crude oil requirement, making domestic fuel pricing sensitive to geopolitical disruptions.

Malhotra said the government’s fiscally cautious approach meant prolonged subsidies or tax reductions would eventually become difficult to maintain.

“At present, excise duties have been lowered and oil marketing companies are absorbing part of the burden,” officials familiar with the matter said, referring to the current pricing strategy.

The remarks come at a time when international energy markets are reacting sharply to uncertainty around supply routes and regional stability.

Inflation Risks Rising

The RBI Governor also flagged concerns over inflationary pressures building up in the economy. India’s retail inflation rose to 3.48% in April from 3.40% in March, although it remained below most market estimates.

Malhotra said elevated energy prices could gradually spill over into transportation, manufacturing and household expenses if the situation continues.

“We have a framework of flexible inflation targeting, but in such times that is not sufficient,” he said during the discussion, stressing the importance of coordination between fiscal and monetary authorities during supply-side shocks.

Economists have warned that persistently high crude prices could affect both consumer inflation and India’s current account balance in the months ahead.

Govt Taking Precautionary Steps

The Centre has already initiated several measures aimed at managing pressure on foreign exchange reserves and import costs.

Prime Minister Narendra Modi recently appealed to citizens to voluntarily reduce fuel consumption and postpone non-essential gold purchases. The government has also sharply increased customs duty on gold imports in recent weeks.

Officials indicated that additional measures to curb non-essential imports could be considered if global commodity prices remain elevated.

RBI Staying Cautious

The Reserve Bank has so far maintained a cautious policy stance amid the uncertain global environment. At its April monetary policy review, the central bank kept the repo rate unchanged at 5.25%.

The RBI currently projects India’s GDP growth at 6.9% for the ongoing financial year, while average inflation is estimated at 4.6%.

Malhotra said the central bank was closely monitoring incoming economic data and evolving geopolitical developments before taking further policy decisions.

“We are becoming increasingly data-dependent and taking decisions meeting by meeting,” he said.

He added that temporary shocks could be managed without aggressive intervention, but sustained inflation would require a response from the central bank.

June Policy In Focus

Market participants are now closely watching the RBI’s next monetary policy meeting scheduled for June 5. Analysts expect the central bank to maintain a cautious tone as uncertainty over oil prices and global trade conditions persists.

For consumers, much may depend on how long crude prices remain elevated and whether state-run fuel retailers continue to absorb the additional burden.

If the West Asia conflict intensifies further, pressure on domestic fuel prices and inflation could become harder to contain.