Crude shock to macro stability

New Delhi: If oil prices rise by another $20 in a sharp and sustained manner, it will raise macro stability risks in Asia and the economies which are most exposed are India, South Korea, and Thailand, Morgan Stanley said in a report.

India is exposed on both inflation and current account fronts, Thailand is exposed via its current account but relatively less so on inflation, and in contrast, South Korea is exposed on inflation but not current account deficit.

"A $10/bbl rise in oil prices would have a drag of 20bps on Asia's current account balances, we estimate, with Thailand, Korea and India most exposed, given their high dependence on oil imports," Morgan Stanley said.

The Indian government could consider a reduction in fuel excise duty cut (Rs5-10/lt), but any additional explicit stimulus would be less likely in order to balance concerns on fiscal slippage, the report said. The RBI may have to act sooner than expected i.e. possibly in the April policy review to preserve macro stability and increase the risk of it taking up front loaded rate increases, Morgan Stanley said.