Egypt’s political crisis may drive oil and commodity prices higher, Indian central bank Deputy Governor Subir Gokarn said, flagging a “new risk” to inflation that may spur policy makers to boost interest rates.
“There’s obviously a risk that the situation will transmit into higher commodity prices,” Gokarn told reporters in New Delhi today. “So, that intensifies the risk.”
Indian government bond yields climbed to a three-week high as Asia’s third-largest economy, which meets about three quarters of its annual energy needs from imports, braces for the 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.
“Everybody is bearish on bonds due to the gains in prices,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank in Mumbai. “The Egypt issue has also added to the uncertainty on the oil front.”
The yield on the benchmark nine-year government bond climbed for a third day, rising one basis point to close at 8.21 percent in Mumbai. The rupee advanced 0.2 percent to 45.48 against the dollar.
Reserve Bank of India Governor Duvvuri Subbarao on Jan. 25 raised the key repurchase rate for a seventh time in a year and pledged “persistence with the anti-inflationary monetary stance” as he boosted the nation’s inflation forecast.
Subbarao said India’s benchmark wholesale-price inflation rate may be at 7 percent by March 31, compared with the earlier estimate of 5.5 percent. The gauge rose 8.4 percent in December.
“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.”
Protests demanding an end to.