RBI Says Egypt Crisis Adds Uncertainty to Oil Price, May Affect Policy
Egypt’s political crisis poses a risk to oil prices and will “impact” the Indian central bank’s actions, Deputy Governor Subir Gokarn said.
“A whole set of events unfolded in the Middle East which are starting to have an impact on oil prices and that is something which we didn’t anticipate at the time of making the policy announcement on Jan. 25,” Gokarn said yesterday in Dabolim, in the western Indian state of Goa. “It is going to have an impact on our thinking, on our actions going forward.”
Asia’s third-largest economy, which meets about three quarters of its annual energy needs from imports, is bracing for the economic impact of higher fuel costs. Oil prices could more than double if the unrest in Egypt forces the closure of the Suez Canal, Venezuelan Oil Minister Rafael Ramirez said Feb. 4.
“Uncertainty in the Middle East will impose risks on oil and higher prices of oil could lead to inflation,” Joseph Stiglitz, a Nobel Prize-winning economist, said in New Delhi on Feb. 5. “In the short-run, it may make the recovery more difficult.”
Asian economies including India and China led a global recovery last year that’s been restrained by Europe’s sovereign- debt crisis and a U.S. job market where unemployment has stayed above or at 9 percent since May 2009.
India’s 11-year bond dropped for a third day. The yield on the 8.13 percent 2022 bond rose two basis points to 8.26 percent as of 9:11 a.m. in Mumbai. The Bombay Stock Exchange’s Sensitive Index rose 0.3 percent while the rupee advanced 0.1 percent to 45.56 against the dollar.
The Reserve Bank of India last month increased its key repurchase rate for the seventh time in a year, boosting the measure by a quarter of a percentage point to 6.5 percent, to rein in inflation.
Protests demanding an end to President Hosni Mubarak’s 30- year rule erupted Jan. 25 in Cairo and have left as many as 300 people dead, according to the United Nations. Concern that turmoil in Egypt could force the closure of the Suez Canal, halting crude shipments through the crucial waterway, sent North Sea Brent crude oil prices above $100 a barrel for the first time since October 2008 last week.
Brent crude for March settlement was at $100.20 a barrel, up 37 cents on the London-based ICE Futures Europe exchange. Prices have climbed 44 percent in the past 12 months.
About 2.5 percent of world oil output moves through Egypt via the waterway and the Suez-Mediterranean Pipeline, according to Goldman Sachs Group Inc.
Egyptian Vice President Omar Suleiman and some members of the opposition yesterday agreed on limited steps to resolve the crisis, even as the government stood firm against the demand from protesters that Mubarak resign.
India’s Prime Minister Manmohan Singh said Feb. 4 the nation needs to urgently contain prices, that are rising at the fastest pace among major economies in Asia, as inflation poses a “serious threat to the growth momentum.”
India’s benchmark wholesale-price inflation accelerated to 8.43 percent in December, from 7.48 percent in the previous month, due to higher costs of food and oil.
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