Page 5 - Policy & Economic Report - June 2025

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

June 2025 Headline inflation-: Year-on-year inflation rate based on All India Consumer Price Index (CPI) for the month
of May, 2025 over May, 2024 is 2.82% (Provisional). There is decline of 34 basis points in headline inflation
of May, 2025 in comparison to April, 2025. It is the lowest year-on-year inflation after February, 2019.
Food Inflation: Year-on-year inflation rate based on All India Consumer Food Price Index (CFPI) for the
month of May, 2025 over May, 2024 is 0.99% (Provisional). Corresponding inflation rate for rural and
urban are 0.95% and 0.96%, respectively. A sharp decline of 79 basis point is observed in food inflation in
May, 2025 in comparison to April, 2025. The food inflation in May, 2025 is the lowest after October, 2021.

According to the monetary policy meeting, record wheat production and higher production of key pulses
in the Rabi crop season, and expected above normal monsoon along with its early onset augurs well for
Kharif crop prospects should ensure adequate supply of key food items. Reflecting this, inflation
expectations are showing a moderating trend, more so for the rural households.

Taking the above factors into consideration the policy projects CPI inflation for the financial year 2025-26
at 3.7 per cent, with Q1 at 2.9 per cent; Q2 at 3.4 per cent; Q3 at 3.9 per cent; and Q4 at 4.4 per cent

Policy repo rate is being reduced by 50 basis points (bps) to 5.50 per cent with immediate effect. There
will be consequent adjustment of the Standing Deposit Facility (SDF) rate under the Liquidity Adjustment
Facility (LAF) to 5.25 per cent and of the Marginal Standing Facility (MSF) rate and the Bank Rate to 5.75
per cent. RBI expects to attain the objective of achieving the medium-term target for consumer price
index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while stepping up growth momentum.

India’s economic activity surged in June, with the HSBC Flash Composite Output Index climbing to a 14-
month high of 61, indicating a sharp and above-trend expansion in both manufacturing and services. The
Flash India Manufacturing Purchasing Managers' Index (PMI) rose to 58.4 in June from 57.6 in May, while
the output index reached 61.5, its highest since April 2024. In the services sector, the activity index
increased to 60.7 from 58.8 in May, reflecting robust momentum.

On the external front, India’s total exports (Merchandise and Services combined) for May 2025 are
estimated at USD 71.12 Billion, registering a growth of 2.77 percent vis-à-vis May 2024. Total imports
(Merchandise and Services combined) for May 2025 are estimated at USD 77.75 Billion, registering a
negative growth of 1.02 percent vis-à-vis May 2024.

As far as oil and gas industry is concerned, global oil markets experienced significant turbulence following
a sharp escalation in geopolitical tensions, as Israel launched a series of air strikes on targets in Iran,
prompting retaliatory action from Tehran. Although the two nations have engaged in a prolonged shadow
conflict for decades, the current escalation marks the most intense phase to date, notably involving
attacks on energy infrastructure for the first time. As of the time of reporting, Iranian oil flows remained
unaffected; however, heightened concerns over potential regional disruptions—particularly to oil transit
through the strategically vital Strait of Hormuz—led to a surge in oil prices, with Brent crude futures rising
to a six-month high of $74 per barrel.

Iran has repeatedly issued threats to close the strategically vital Strait of Hormuz in the event of an attack.
Even a temporary closure of the Strait would significantly impact global oil and gas markets. The Strait

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