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The RBI expects the price of the Indian basket of crude oil imports to be around $85 per barrel going ahead amid geopolitical tensions which have “imparted significant uncertainty” to the outlook.

India exports around 85 per cent of its crude requirement, and soaring oil prices which have often crossed the $90 a barrel mark in recent years, tend to drag down the economy.

The RBI’s monetary policy report released on Friday states that international crude prices exhibited sizeable two-way movements in the second half of 2023-24, falling in October-December 2023 to around $75 per barrel on slowing global demand amidst weak manufacturing activity and easing demand for transportation fuels as well as supply increases from non-OPEC countries.

However, amidst intensifying hostilities in the Middle East, deep output cuts by OPEC plus cartel, and incidents of supply outages, international crude prices moved higher from mid-December reaching an average close to $85 per barrel in March, the report points out.

“The spread between global petroleum product prices and crude prices eased from its recent peaks in mid-2022 but remains elevated by historical standards in view of demand-supply refinery mismatches. Taking into account these factors, the baseline assumption for the crude price (Indian basket) is retained at $85 per barrel,” the report states.

Regarding the outlook for the rupee, the report states that the nominal exchange rate of the Indian currency saw two-way movements in the range of Rs 82.8-83.4 per US dollar in the second half of 2023-24. Taking into consideration the uncertainty around US dollar movements, the ebbs and flows of global capital flows and international crude oil prices, the baseline assumption for the exchange rate is revised to Rs 83 per US dollar.

It also sees as a positive factor in the global growth forecast for 2024 being revised upwards by 20 bps to 3.1 per cent by the International Monetary Fund (IMF) in its January 2024 update of the World Economic Outlook (WEO) from its October 2023 projection. Global economic growth is expected to increase marginally to 3.2 per cent in 2025 and global trade growth (goods and services combined) is projected to accelerate from 0.4 per cent in 2023 to 3.3 per cent in 2024 and further to 3.6 per cent in 2025.

However, the headwinds from protracted geopolitical tensions and increasing disruptions in trade routes pose risks to India’s growth outlook, according to the report.

Taking all these factors into consideration, India’s real GDP growth for 2024-25, is projected at 7.0 per cent, with Q1 at 7.1 per cent; Q2 at 6.9 per cent; Q3 at 7.0 per cent; and Q4 also at 7.0 per cent. The risks are evenly balanced, the report adds.