Rising global oil and coal prices pose macro risks, says Morgan Stanley analysts

Foreign securities firms said Thursday that rising commodity prices have exposed India to macro risks, including already rising inflation and the forefront of growth. According to Morgan Stanley analysts, oil prices rose 14% to US $ 83 per barrel and coal prices rose 15% to US $ 200 per metric ton.

They said this rise in energy prices, especially oil, raised concerns about rising inflation, slowing growth, and whether this could lead to catastrophic monetary tightening. They added that inflation carries an upward risk and growth only improves from a two-year compound annual growth rate, which leads to policy normalization.

Inflation will fall below 5% in the next few measurements and then return to 5.5% by the quarter to March 2022, with continued rises in energy prices, especially oil, increasing inflation risk. Said.

Assuming a full pass-through, a 10 percent rise in oil prices could increase CPI inflation by 0.40 percent, but in terms of current account balance, consider India importing 80 percent of oil demand. A 10 percent rise in oil prices will increase CAD by 0.3 percent of GDP, he said.

However, they said the spectacular exports would leave the 2010 current account gap limited to 1%. According to Swiss Peer UBS, a rise in global oil prices of US $ 10 per barrel will increase India’s current account deficit (CAD) to US $ 14 billion, or 0.5% of GDP, and oil prices to US $ 100 per barrel. Then, it may rise temporarily. Pushes CAD up to about 3%.

In such a scenario, we believe the rupee can also temporarily test 78 against the US dollar. On the growth side, although there are short-term risks due to supply-side shortages (semiconductor chips affecting the automobile sector, coal shortages affecting power generation), the situation is stable in margins, and securities companies We expect the impact to be temporary. ..

He added that high-frequency growth data is improving rapidly, with most indicators moving to the positive zone on a two-year CAGR basis. The RBI said it would begin the process of policy normalization by raising reverse repo rates (absorbing excess liquidity) by 0.15-0.20% in December and February, and central banks could also raise repo rates. Added. February if growth improves further.

UBS said coal shortages, according to normative requirements, due to stock shortages in the month before the monsoon, restrictions on supply to default power plants by Coal India, higher-than-expected increase in electricity demand for economic recovery, and eastern floods. Connected monsoon rainfall, and central states with coal mining, lead to logistic problems. Decrease in coal imports.

Unless there is a policy directive, there is little reason for DISCOM to limit supply to power-deficient industrial consumers, he said, pointing out that such consumers are best suited for DISCOM.

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Rising global oil and coal prices pose macro risks, says Morgan Stanley analysts

Source link Rising global oil and coal prices pose macro risks, says Morgan Stanley analysts

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