If the Middle East conflict continues to push up energy prices and disrupt supplies, India could face pressure on the rupee, higher inflation and a widening current account deficit, Moody’s Ratings had said. “Costly energy imports would weaken the rupee, raise inflation, worsen the current account balance and complicate monetary policy as well as fiscal management if they lead to expanded subsidies to help offset the economic shock,” it added.
“But a prolonged disruption in navigation through the Strait of Hormuz, beyond our baseline of a few weeks, would likely trigger sustained supply shortages; prices averaging higher than USD 100 per barrel for Brent, the main international benchmark crude; higher inflation; tighter financial conditions; and slower global growth,” it further said. Rising inflation expectations will lead to concerns over the RBI having lower margin to ease monetary policy.
Also Read | Gold and silver ETFs climb up to 4% after two-day dip. Is the trend reversing?
“India is a resilient country with strong fundamentals. While we have war raging on, Indians understand the challenges and are willing to work with the government. There will be a shortfall in economic activity in the short run, but we will make up for it in the coming months,” said Union Commerce and Industry Minister Piyush Goyal during a fireside chat with CNBC-TV18 earlier this month.
Notably, some ships have been able to pass through the Strait of Hormuz, easing oil prices slightly today. Yet, worries over the continuing war are keeping investors on edge.The recent decline in Bajaj Finance’s share price comes amid an overall drop in financial services and banking stocks. Bajaj Finance shares have declined more than 20% in the past one month, wiping off more than Rs 1 lakh crore from its market capitalisation since the beginning of the war in early March to fall to nearly Rs 5 lakh crore.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
