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Crude oil prices are unlikely to decline to USD 70 per barrel this year and are expected to remain in the range of USD 80-85 per barrel in 2026, according to a report by Union Bank of India.
The report noted that while oil prices may moderate from current elevated levels, a sharp decline is unlikely given ongoing global uncertainties. "We do not think oil will get back to USD 70 this year... our base case for oil price is USD 80-85 per barrel in 2026," the report stated. It added that oil price shocks tend to have a gradual impact at lower levels but can turn sharply negative when prices rise beyond USD 100-120 per barrel, increasing the likelihood of monetary tightening, including possible rate hikes by the US Federal Reserve. The report also highlighted that a weak rupee is creating multiple feedback effects in the economy, particularly through higher interest rates. It noted that the Reserve Bank of India's (RBI) policy response will depend largely on where oil prices settle in the medium term. Flagging key concerns for the RBI, the report pointed to a rapid shift in rate transmission from cuts to hikes. Banks, especially public sector banks, have already increased lending and deposit rates in January and February 2026 and are likely to continue doing so in the coming months. It also noted that the credit-deposit (CD) ratio has reached record highs, which the RBI has flagged as unsustainable in its Financial Stability Report. Additionally, the widening gap between structural and systemic liquidity is pushing banks to raise high-cost deposits. The report suggested that the RBI may need to adopt measures similar to those seen during the 2013 "Taper Tantrum," including tolerating higher government bond yields and lending rates, allowing credit mispricing to adjust, and restricting liquidity infusion. For the Indian economy, the report warned that if oil prices settles at around USD 90 per barrel, key macroeconomic indicators could be adversely affected in FY27. GDP growth could slow to around 6.5 per cent, with downside risks, while CPI inflation may remain above 4.5 per cent, increasing the chances of a rate hike. (ANI)
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