Financial intelligence company Moody’s Analytics on Tuesday said that India’s inflation is at an “uncomfortably high” level and “worrisome”, making it an exception, along with Philippines, in Asian economies, PTI reported. The company said higher fuel prices will maintain upward pressure on retail inflation and not allow the Reserve Bank of India to offer further rate cuts.
India’s retail inflation rose to a three-month high in February at 5% on higher fuel prices. This could challenge the central bank’s accommodative stance as it mainly takes into account retail inflation while deciding on the monetary policy.
Core inflation – which excludes food, fuel and light index – was up 5.6% in February, from 5.3% in January, Moody’s Analytics said in its macro roundup report.
The company said inflation is subdued in most of Asia, adding that it was expected to only gradually pick up in 2021 because of rising oil prices and economies starting to reopen amid the coronavirus crisis.
“India and the Philippines are exceptions,” Moody’s Analytics said. “In these economies, inflation is above comfort levels, adding to the list of challenges for policymakers.”
“Volatile food prices and rising oil prices led retail inflation to exceed the upper band of 6% several times in 2020, inhibiting the RBI’s ability to keep accommodative monetary settings in place during the height of the pandemic,” the company said about India.