NEW DELHI:
If oil prices rise by another $20 in a sharp and sustained manner, it will raise macro stability risks in Asia and the economies which are most exposed are India, South Korea, and Thailand, Morgan Stanley said in a report.
India is exposed on both inflation and current account fronts, Thailand is exposed via its current account but relatively less so on inflation, and in contrast, South Korea is exposed to inflation but not current account deficit.
The Indian government could consider a reduction in fuel excise duty cut (Rs 5-10/lt) but any additional explicit stimulus would be less likely in order to balance concerns on fiscal slippage, the report said.
The RBI may have to act sooner than expected, i.e., possibly in the April policy review to preserve macro stability and increase the risk of it taking up front-loaded rate increases.
It is said that a US$10/bbl increase in oil prices is unlikely to trigger any major divergence from the current gradual normalisation path.
Geopolitical tensions, in a nutshell, will impart a stagflationary impulse in Asia.
Asia’s oil burden is rising from low levels and macro-stability indicators (inflation and current account) are benign and staying in policy makers’ comfort zones.
The most direct impact will be via higher oil and commodity prices.
This is especially so for Asia as it is highly dependent on oil imports to meet its energy needs as compared to the US and Europe.
If oil prices rise further in a sharp and sustained manner, it would be a clear negative for Asia.
Asia is the world’s largest exporter. Hence, if geopolitical tensions weigh on global consumption and investment, this would, in turn, lead to weaker external demand conditions for Asia. (IANS)