Impact of Diesel Price Deregulation on asymmetricity of Exchange rate Pass-through to inflation

India is a net importer of energy, with High-Speed-Diesel playing a central role in India’s energy dynamics. Due to this, diesel prices were passed in a controlled manner and distributed asymmetrically between favourable and unfavourable shocks. Exchange rates are an important channel through which these energy shocks are transmitted to inflation. Thus, price deregulation reforms are expected to effect this asymmetricity of pass-through. This article uses a non-linear ARDL method to investigate the impact of this policy change on this asymmetricity of exchange rate pass-through. It finds that the reforms have affected the short and long asymmetricity and have also quickened the transmission of exchange rate shock to inflation.

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