Easing crude prices good for India’s inflation, GDP growth: SBI Research

Average crude oil prices will be around USD 45 for the next half of this year and this, coupled with positive macro fundamentals, could translate into better growth numbers for the country, says a report. According to SBI Research’s Ecowrap report, the easing of crude oil prices will have positive effect not only on inflation but also on GDP growth.

“Past trends indicate that low oil prices lift global growth (and subsequently domestic growth) significantly,” the report said. During 2003-2006, when average Brent crude was USD 47 per barrel, the global GDP growth was 5 per cent (average) and India’s average growth was at 8.6 per cent, it said.”

Since average crude oil prices are going to be around USD 45 for the next half of 2017 or so, along with the positive macro fundamentals like projection of normal monsoon, lower CAD, continued spectre of low inflation accommodative monetary policy and fiscal discipline, a better growth number in 2017 and 2018 is expected.The price of crude oil has plummeted more than 15 per cent in recent weeks to around USD 48 per barrel.“In 2017, till date the average crude oil price was USD 54 per barrel (maximum USD 57) and given the current trend in non-OPEC oil production, we believe that crude oil prices may dip below USD 45 level shortly or even lower than that.“US crude production has risen by over 10 per cent since mid-2016 to 9.3 million barrels per day (bpd), close to the output of top producers like Russia and Saudi Arabia and is projected to reach 9.9 million bpd in 2018,” the report noted.

State Bank of India