Moody's Investors Service in a report has said that India's high food inflation is negative for the country's sovereign ratings and it has a potential to hurt government finances and monetary policy flexibility. Sustained food inflation poses a threat because it exacerbates the country’s macroeconomic challenges of slowing growth, high inflation and large fiscal and current account deficits, the report added.
Further, the report underscored that even if non-food inflation growth pace is slowing down, sustained food inflation over several quarters, as in India, can ultimately revive non-food inflation, if wages increase in response to a rising cost of living. It also stated that high inflation curbs the extent to which the central bank may lower interest rates, to revive the sagging economic growth. These comments assume significant importance as they come a day prior to Central bank announcing its mid-quarter monetary policy review.
To highlight, Moody's is the only major credit agency to rate India with a 'stable' outlook, while other two major agencies, Fitch Ratings and Standard and Poor's Ratings Services have reduced their outlook on India to 'negative' from 'stable' last year.
Meanwhile, the non-food manufacturing inflation or core inflation slowed to 3.8%, India’s wholesale price inflation for food eased slightly to 11.4% in February, slightly lower than January’s 11.9%, second highest in two years.
