RBI warns external sector risks if commodity cycle reverses

The RBI in its India Financial Stability Report has warned about adverse external sector impact once crude prices starts rising. According to the central bank, faster growth in in oil imports in recent months indicate that import bill will surge once price goes up.

Oil prices have shown an uptrend over the last couple of months and projections are that it may settle around $60 per barrel.

The report observe that the country’s trade situation is strong because of declining current account deficit. But the potential for a commodity price reversal will bring back pressure on the BoP front.

Regarding the financial sector, the IFSR observes that the prevailing trend in bad asset quality and the genera stress in the financial system has not reversed.

Financial Stability Report is published by the RBI two times in a year – June and December. The report makes an assessment of the overall financial stability risks like weakening of asset quality, financial stress and other indicators. The general macroeconomic trends that may produce a financial stability risk in future is also examined in the report.