Rupee depreciation can wipe out gains from fuel price hike: SBI Research
New Delhi, May 16
The Indian Rupee has reached a critical level where any further depreciation could wipe out the gains from the recent Rs 3 per litre increase in petrol and diesel prices, according to an SBI Research Ecowrap report.
The report warned that "even an additional depreciation of Rs 2 in the Rupee raises the effective crude oil price, pushing the landed import cost, which fully offsets the gains from the current fuel price hike."
The SBI Research report said the recent fuel price hike was aimed at reducing losses faced by Oil Marketing Companies (OMCs) due to elevated crude oil prices and unchanged retail fuel prices.
"OMCs' under recoveries on sales of petrol and diesel are soaring because of unchanged retail prices," the report said. It added that OMCs are "incurring losses to the tune of Rs 1000 crore per day, which amounts to around Rs 3.6 lakh crore a year."
According to the report, the Rs 3 per litre increase in fuel prices is expected to provide relief of around Rs 52,700 crore to OMCs, covering only around 15 per cent of their estimated FY27 losses.
Highlighting the pressure from currency weakness, the report said, "the Rupee has already approached a critical depreciation threshold, beyond which further currency weakness could substantially erode the intended benefits of domestic fuel price revisions."
The report estimated that, assuming an average FY27 exchange rate of Rs 94 per US dollar and crude oil prices at USD 106 per barrel, the landed crude oil cost works out to nearly Rs 9,964 per barrel. It said the Rs 3 fuel price increase provides a benefit of around Rs 477 per barrel to OMCs, but a further Rs 2 depreciation in the Rupee significantly raises import costs.
SBI Research also said India needs a broader strategy to manage external sector risks. "There is a need for a comprehensive policy on balance of payments," the report said.
The report further noted that global crude oil markets remain under pressure amid disruptions in the Strait of Hormuz due to the ongoing West Asia conflict.
"As per the latest IEA report, crude will continue to remain under pressure owing to the depleting inventories," the report said.
The report added that shipments through the Strait of Hormuz have declined sharply in recent months, impacting both crude oil and LNG flows.
On inflation, SBI Research said the fuel price hike may have an immediate impact of around 15-20 basis points on Consumer Price Index (CPI) inflation during May-June 2026 and revised its FY27 inflation forecast to 4.7 per cent.
— ANI
Reader Comments
So basically, if rupee falls further, the hike is useless. And with global crude under pressure, what next? ₹6 more? Our policymakers need to look at long-term solutions like boosting EV adoption and strategic reserves.
Fair point by SBI Research. But where's the plan for strengthening rupee? Export promotion, FDI push, reducing gold imports... We keep firefighting but never prevent the fire. Aatmanirbhar in economy needs serious execution.
It's a global issue, but India's vulnerability to oil price shocks is high. The report calling for a comprehensive balance of payments policy is spot on. We can't keep subsidizing fuel forever at the cost of fiscal deficit.
Every time fuel prices go up, we hear about OMC losses worth lakhs of crores. What about the losses of millions of households? ₹3 per litre hike may cover 15% of OMC losses, but it adds ₹300-500 extra monthly for families. Not fair.
Interesting data from SBI. The interplay between currency depreciation and fuel prices is often overlooked. India should accelerate renewable energy and reduce dependence on Middle Eastern oil, especially with Strait of Hormuz risks.
The report's inflation impact estimate
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