Crude oil poses a key risk to financial stability: Finance Minister

‘Keeping an eye on volatility in markets, but no plans to defer LIC IPO’

The government and the financial sector regulators are keeping close tabs on the evolving Russia-Ukraine situation, high crude oil prices and the extreme volatility in financial markets, Finance Minister Nirmala Sitharaman said on Tuesday, ruling out any extraordinary or special measures to cope with the implications of these headwinds.

Ms. Sitharaman said she is studying the facts of the governance fiasco at the National Stock Exchange (NSE) to assess whether adequate regulatory action was taken by the stock market regulator in the case. She was unfazed about the volatility in equity markets affecting the prospects for the listing of the Life Insurance Corporation of India (LIC) shares before the end of the current financial year in March.

India was hoping for a diplomatic resolution of the Ukraine crisis and the External Affairs Ministry was in touch with all countries in the region so that Indian trade was not affected, Ms. Sitharaman said after steering the 25 th meeting of the Financial Stability and Development Council in Mumbai with the chiefs of financial sector regulators overseeing banking, capital markets, insurance and pensions.

Runaway crude oil prices were identified as one of the major challenges for India’s financial stability by the Council, which also deliberated extensively on “the extreme volatility’ in markets, ‘headwinds’ from the tightening of monetary policy by the U.S. Federal Reserve and other central banks and the “worrisome international situation” in Ukraine, she indicated.

“It is very difficult to say on crude prices, [but] it is obviously an important consideration… It’s not just the rise in global prices that is a problem, but there’s a supply challenge as well,” she pointed out.

On the prospects for local retail fuel price increases, which are expected to rise in tandem with global prices after the ongoing Assembly polls conclude in March, Ms. Sitharaman said it was a decision for oil marketing companies to make.

“But about why oil marketing companies, who actually play at a price… meaning they buy at some cost, they use a 15-day average based on which they put out a pump-level price; what the OMCs will have to do, why they have not done it for the last 7 days, 17 days, 27 days, I cannot answer,” she asserted.