IMF official says India should put inflation ahead of the rupee as oil risks grow

what happened

Krishna Srinivasan, who leads the IMF's Asia and Pacific department, told TradingView that elevated crude prices remain one of the largest threats to growth in Asia. He said India's monetary policy should stay anchored on controlling inflation rather than reacting to swings in the rupee.

According to Srinivasan, the IMF raised its growth forecasts for Asia and India, but the risks are skewed to the downside as geopolitical tension keeps oil expensive. If crude stays high and feeds into inflation expectations, central banks may need to respond more forcefully. He noted that oil and gas consumption accounts for about 4.5% of the region's GDP, roughly double the EU level, and that much of the oil is imported.

On the currency, he argued the exchange rate should act as the first buffer against external shocks, while policymakers concentrate on price stability. He also said India's current account has proven sturdier than expected, with capital flows, including foreign direct investment, presenting the bigger challenge.

why it matters

For markets, the message suggests that if expensive oil persists, Asian rate expectations could stay firm, weighing on currencies of energy importers. Srinivasan also warned that the oil shock could deepen before it eases. The IMF's projections, he said, rely on oil price forecasts at the time they are made rather than on worse-case scenarios.

market impact

Brent and USD/INR: costlier crude raises import bills and pressures the rupee and Indian inflation.

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