Photo: Bloomberg
Photo: Bloomberg

Collapse in commodities

Weak commodity prices are generally good news for the Indian economy, but it is not all good

The recovery in global commodity prices since January has been halted in its tracks. Crude oil is now trading at its lowest level in five months. Industrial metals, too, have been hammered. Some analysts have begun talking of a new commodities rout.

Weak commodity prices are generally good news for the Indian economy. The monetary policy committee of the Reserve Bank of India (RBI) has been mentioning hardening global commodity prices as one of the underlying risks to inflation. It is too early to say whether what we have seen in recent days is a temporary blip or a more sustained decline, but the trend in the coming weeks will definitely affect the central bank decision on interest rates. The rupee has, meanwhile, continued to rally because of the positive effect of lower commodity prices of the Indian balance of payments.

But it is not all good. The hopes that highly indebted Indian steel companies will be in a better position to service their bank loans could go for a toss if the losses in commodity prices sustain.

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