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Oil shock: What the RBI can do

The absolute oil price rises at a very high rate and the absolute prices of other goods and services rise somewhat at their usual rates

Mumbai: A security personal outside Reserve Bank of India (RBI) headquarters, in Mumbai, Wednesday, June 8, 2022. (PTI Photo
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Gurbachan Singh Mumbai
After the early 1980s, the real oil price has become quite cyclical. It goes up and down with a very slight long-term upward trend. So, if the international oil price goes up, ideally the government should reduce the tax on oil or even give a subsidy so that the domestic price of oil does not go up much. And, subsequently when the real international oil price is quite low, the government can impose a large tax. Again the domestic oil price remains somewhat stable. However, the government may not do all this.

Then the question is, what can the Reserve Bank
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