India Faces Rising Oil Prices and Central Bank Policy as Main Macro Risks

Rising oil prices and hawkish policy from its central bank are the two biggest risks for India’s economy in 2018, a financial expert told CNBC on Wednesday.

The increasing price of oil is “concerning” for India, said Vik Mehrotra, CEO and CIO of India-focused financial advisory firm Venus Capital. He added that this would particularly be an issue if oil goes over $70 per barrel. India is among the world’s largest oil importers and rising prices could result in higher inflation.

Given that tighter monetary policy from the U.S Federal Reserve and the European Central Bank is expected to emerge in 2018, the Reserve Bank of India will adopt a “more hawkish stance” in line with this, Mehrotra added. These global headwinds mean that the Reserve Bank of India was at a point where “interest rates have bottomed out.”

Risks aside, some positive economic news has come out of the world’s second largest country by population in recent days.

India’s factory activity grew at its fastest rate in five years in December, data released Tuesday showed. The Nikkei-Markit Manufacturing Purchasing Managers’ Index rose to 54.7 in December, up on November’s 52.6.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza