Given that the region is a net oil importer, a decline in oil prices will result in a positive terms of trade impact and will provide support to current account balances across the region. India is the largest net importers in the region and will hence benefit most from this.
Lower oil prices will bring greater disinflationary pressures and, on our expectations, will provide more comfort to policy-makers in providing further monetary accommodation
Inflation: Lower oil prices will help bring down CPI inflation at a faster pace than in our base case. We expect CPI inflation to decelerate by an additional 1.2pp in 2015
Monetary policy: RBI is expected to follow a framework of keeping positive real rates at 150-200bp. If CPI inflation comes down further due to lower oil prices
Energy pricing reforms: Government can move to deregulate LPG and kerosene prices.
