Prolonged excessive temperatures might worsen inflation, harm progress: Moody’s

Prolonged excessive temperatures are credit score adverse for India, as that would exacerbate inflation and harm progress, Moody’s Investors Service mentioned on Monday.

Over the long run, India’s extremely adverse credit score publicity to bodily local weather dangers means its financial progress will probably change into extra unstable because it faces rising, and extra excessive incidences of climate-related shocks, it famous.

The score company mentioned though warmth waves are pretty frequent in India, they often happen in May and June. However, this yr New Delhi witnessed the fifth heatwave in May with the utmost temperature touching 49 levels celsius.

“The prolonged high temperatures, which are affecting much of the northwest of the country, will curb wheat production and could lead to extended power outages, exacerbating already high inflation and hurting growth, a credit negative,” Moody’s mentioned.

The Indian authorities has revised down its estimates for wheat manufacturing by 5.4 per cent to 105 million tonnes for the crop yr ending June 2022, given decrease yields amid increased temperatures.

“The decrease manufacturing, and fears {that a} surge in exports to capitalise on excessive international wheat costs would add to inflationary pressures domestically, has prompted the federal government to ban the export of wheat and to divert it towards native consumption as an alternative.

“Although the move will partially offset inflationary pressures, it will hurt exports and subsequently growth. The ban comes at a time when India – the world’s second-largest wheat producer – could have been capitalising on the global output gap from wheat following the Russia-Ukraine military conflict,” Moody’s mentioned.

Global wheat costs have jumped 47 per cent for the reason that battle started in late February.

The company mentioned India’s export companions will probably face an extra surge in wheat costs due to the ban. They embrace Bangladesh, which absorbed 56.8 per cent of India’s wheat exports in fiscal 2021, Sri Lanka (8.3 per cent), UAE (6.5 per cent) and Indonesia (5.4 per cent).

Moody’s additionally mentioned that additional drawdowns in coal stock might result in extended energy outages in industrial and agricultural manufacturing, resulting in important cuts to output and weighing additional on India’s financial progress – notably if the heatwaves proceed past June.

“Inflation will probably be partially alleviated by retaining wheat manufacturing for home consumption and the cap in energy costs in exchanges, in addition to the Reserve Bank of India’s 40-basis-point coverage fee rise in early May.

“However, given the prominence of cereals and food more generally in India’s consumption, elevated food prices could add to social risks if they persist,” Moody’s mentioned.

An increase in costs throughout all objects from gas to greens and cooking oil pushed WPI or wholesale value inflation to a file excessive of 15.08 per cent in April and retail inflation to an almost eight-year excessive of seven.79 per cent.

High inflation prompted the Reserve Bank to carry an unscheduled assembly to boost the benchmark rate of interest by 40 foundation factors to 4.40 per cent earlier this month.