The Reserve Bank on Wednesday said that global crude oil prices, which are nearing the $100 a barrel mark, could impact inflation in India.
"High and volatile crude oil prices in the international markets pose a major risk to domestic price stability," the RBI said in its report on 'Trend and Progress in Banking'.
The report said as India imports about 70 per cent of its crude oil requirements, oil prices are a critical element in the sustainability of growth process and maintenance of price and financial stability.
The central bank said given that the pass-through from international oil prices to domestic petroleum products remains incomplete, rise in global crude oil is a source of upside risk to inflation.
The present low level of inflation is a comforting factor, it said, adding that if domestic prices are not raised, a rise in international crude prices would adversely affect the financial performance of domestic oil companies.
This also leads to increase in fiscal costs, which assumes significance in view of the rule-based fiscal consolidation process.
Rise in oil prices in international market also has implications for the current account deficit and exchange rate. Last week, crude oil crossed a historical level of $99 a barrel mark in the international market.