RBI Governor: No Inflation Risk from Decline in Russian Oil Purchases

RBI: No Major Inflation Impact from Reduced Russian Oil Imports Amid US Tariff Threats

The Reserve Bank of India (RBI) has downplayed fears of rising inflation resulting from a potential reduction in Russian oil imports due to escalating US trade tensions. RBI Governor Sanjay Malhotra, addressing the media after the Monetary Policy Committee’s (MPC) meeting, asserted that India’s diversified oil supply network and potential fiscal interventions would cushion any inflationary impact. He emphasized that India imports oil from a variety of countries, and the impact of altering the mix would depend on global crude prices and the government's response, particularly through adjustments in excise duties or other levies.

Malhotra’s remarks come in the wake of US President Donald Trump’s imposition of a 25% tariff on Indian imports, along with an unspecified “penalty” over India’s continued energy and defence ties with Russia. Trump also threatened to further increase tariffs within 24 hours, criticizing India for buying "massive" amounts of Russian oil and allegedly profiting by re-exporting it. These tariffs mark the first instance of the US applying secondary trade sanctions on India.

India has firmly rejected the US move, calling it “unjustified and unreasonable.” The Indian government explained that its Russian oil imports began due to traditional suppliers like Iraq and Saudi Arabia diverting their exports to Europe. In fact, the US had initially encouraged India’s Russian oil imports to stabilize global energy markets. Russian oil, once accounting for less than 2% of India’s imports in early 2022, now makes up around 35-40%, thanks to discounted deals that Indian refiners capitalized on after Western countries shunned Russian energy.

According to the RBI’s April Monetary Policy Report, a 10% increase in crude prices over the projected $70/barrel benchmark for FY26 could push inflation up by only 30 basis points (bps). However, in its latest update, the RBI revised its retail inflation forecast downward by 60 bps to 3.1% for the full fiscal year, reflecting confidence in inflationary stability.

Deputy Governor Poonam Gupta also noted that global trade uncertainties are unlikely to significantly affect Indian inflation. Nearly half of India’s inflation basket is food-based, which isn’t directly influenced by global trends. Another substantial portion involves non-tradables, like services, further insulating inflation from international volatility.

Regarding growth, the RBI retained its FY26 GDP forecast at 6.5%, having already revised it downward in April due to anticipated global headwinds. Gupta from HDFC Bank, however, predicted a slight decline to 6.3%, warning that prolonged high tariffs could pose a 20-25 bps downside risk.

On the broader economic front, Malhotra stated that the RBI remains committed to supporting businesses and facilitating trade through regulatory adjustments and foreign exchange management reforms. One such move, announced Tuesday, allows banks to open Special Rupee Vostro Accounts without RBI approval, encouraging rupee-based international trade.

While trade negotiations with the US continue, the RBI expressed hope for a diplomatic resolution, underscoring the central bank’s readiness to act as needed to preserve growth and economic stability in the face of rising global tensions.