* Food inflation to exacerbate India econ imbalances
* Moody's only of 3 major agencies with 'stable' outlook
* Raising food supply will prove challenge as well
(Updates with quote, details, background)
MUMBAI, March 18 (Reuters) - India's high food inflation is
a negative for the country's sovereign ratings as it filters
through the broader economy, with adverse consequences for
growth and the country's large fiscal and current account
deficits, Moody's said on Monday.
Moody's Investors Service is the only one of the three major
credit agencies to rate India with a "stable" outlook. Fitch
Ratings and Standard and Poor's Ratings Services downgraded
their outlook on India to "negative" from "stable" last year.
Higher food prices can accelerate broader inflation by
pushing up wages, while negatively impacting the government
finances and reducing monetary policy flexibility, Moody's said
in a report.
The report comes after S&P last week said the slowdown in
domestic economic growth is less supportive for India's
"Sustained food inflation is credit negative because it
exacerbates India's macroeconomic challenges of slowing growth,
high inflation and large fiscal and current account deficits,"
India last week said consumer price inflation
rose 10.9 percent in February, accelerating slightly from
January, while wholesale price inflation rose 6.84
percent from a year earlier.
Although food inflation slowed down to 11.38 percent last
month from 11.88 percent in January, it stayed in double-digits
for the third straight month, tempering expectations of any
aggressive monetary easing.
Moody's estimates food accounts for more than 50 percent of
the average household spending in India, a worry for an economy
that relies largely on private consumption.
Sustained food inflation over several quarters also has the
potential to push up wages, reducing the extent through which
the central bank can lower interest rates, while reducing the
competitiveness of exports and import-competing sectors.
Food inflation also worsens the country's budget deficit
given the government subsidises prices for a large portion of
the population, Moody's added.
Increasing food supply could be a solution, but India is
constrained by poor rural infrastructure, inefficient food
distribution and storage systems and by agricultural
productivity, Moody's also warned.
(Reporting by Rafael Nam; Editing by Sanjeev Miglani)