The $95 barrel behind RBI’s inflation rethink

The Reserve Bank of India (RBI) has updated its crude oil price assumption to $95 a barrel for the second half of 2026-27, up from $85 per barrel previously. This adjustment explains the central bank's expectation of a 20 basis point increase in its inflation forecast for the fiscal year 2026-27, now projected at 5.2%. The Indian basket of crude oil prices rose to an average of $90.2 per barrel in August and $116.1 per barrel in September, compared to $82.0 in July.

RBI Governor Sanjay Malhotra highlighted that near-term inflation pressures stem from supply-side constraints, high volatility in international oil prices, a weak Southwest monsoon, and El Nino impacts. Indian imports of petroleum, crude, and products surged by 21.3% year-on-year in July-August 2026, reaching $35 billion, up from $28.8 billion in the same period last year.

Malhotra noted that price pressures are evident across various commodities, particularly in the food component, alongside oil. Early signs suggest inflation may become generalized, as indicated by higher core inflation and a wider range of CPI basket components. India's merchandise trade deficit expanded to $58.7 billion during July-August 2026, primarily due to imports of electronic goods and crude oil.

Moving forward, moderation in global trade growth, high energy prices, and ongoing trade policy uncertainties could potentially raise India's current account deficit in 2026-27.