Inflation in India is at an uncomfortably high level and the country, along with Philippines, is an exception among the Asian economies on this front.
The rise in fuel prices will continue to exert upward pressure on inflation and this is likely to prevent the Reserve Bank of India (RBI) from going for further rate cuts, Moody's Analytics, a financial intelligence company and a subsidiary of Moody's Corporation, said in its macro roundup.
India's consumer price inflation, calculated on the basis of Consumer Price Index (CPI), rose to 5.03 per cent in February from 4.06 per cent in January on rise in food and fuel prices. The RBI closely follows retail inflation to determine its monetary policy.
Moody's Analytics also pointed out that core inflation rose to 5.6 per cent in February from 5.3 per cent in January, and called it 'uncomfortably high'.
It said retail inflation crossed the 6 per cent barrier many times in 2020 due to volatile food prices and rise in oil prices, inhibiting RBI's ability to keep accommodative monetary settings in place during the height of the pandemic.
The central bank targets to maintain inflation at 4 per cent, allowing an upper and lower tolerance band of 2 per cent each.
It said inflation is currently subdued in most of Asia, but is likely to pick up in 2021 as economies reopen and crude oil prices rise. Brent crude, it said, has increased 26 per cent so far this year to around $64 per barrel from around $30 per barrel in March 2020 at the peak of coronavirus pandemic.
"India and the Philippines are exceptions. In these economies, inflation is above comfort levels, adding to the list of challenges for policymakers," Moody's Analytics said.
RBI is expected to retain its current inflation-targeting band beyond its current expiry date of March 31, Moody's Analytics said.
(With inputs from PTI)