India's inflation uncomfortably high: Moody's

New Delhi: India's inflation trend is uncomfortably high which will restrict the Reserve Bank's ability to offer further rate cuts, Moody's Analytics said. In a note, Moody's Analytics cited that retail inflation has held above the Reserve Bank's four per cent target for the past eight months. Accordingly, India's core CPI excluding food, fuel and light was up 5.6 per cent in February, from 5.3 per cent in January.

On an overall basis, India's CPI rose to five per cent YoY in February from 4.1 per cent in January. Food and beverage price growth gained 4.3 per cent from 2.7 per cent in January. "Food is a key driver of inflation, representing 46 per cent of the CPI basket." "Volatile food prices and rising oil prices led India's CPI to exceed the upper band of six per cent several times in 2020, inhibiting the RBI's ability to keep accommodative monetary settings in place during the height of the pandemic." As per the note, higher fuel prices will keep upward pressure on headline CPI and keep the RBI from offering further rate cuts.

"The RBI has a target for retail inflation of four per cent with a margin of two per cent either side." "The RBI is expected to retain its current inflation targeting band beyond its current expiry date of 31 March. The government is reportedly mulling small amendments including increasing flexibility in exceptional times."