EGOM approves market-linked Fuel Pricing

The Empowered Group of Ministers (EGoM) has decided to raise petrol and diesel prices. The govt. has approved market-driven increase in fuel prices, thus freeing petrol price from government control.

But there is still uncertainty if this is complete or partial de-regulation.

Impact:

Markets recovered some losses as the news came in. Sensex cut losses by 40 points, and is curently at 17,610.

The PSU OMCs HPCL (up 5.48% ), BPCL (up 4.5% ) and IOC (up 4.1%) rose.

This move will reduce the subsidy burden on the exchequer, thereby reducing fiscal deficit. The government had set the fiscal deficit forecast for FY11 at 5.5% of GDP.

But higher fuel prices will only add to the steepening inflation, strengthening the case for the RBI to hike key policy rates before its 27^th July’10 policy meet.