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India inflation optimism overdone, rate cut unlikely

Continuing global economic uncertainty and recent political setbacks for India’s ruling Congress party has again put the onus on India’s central bank, which meets today, to boost investor confidence.

However, the Reserve Bank of India should stay true to its job of delivering sustained low inflation. This will require the central bank to avoid cutting interest rates this week despite the deceleration in growth – in the fourth quarter of 2011 India’s economy grew at its slowest pace in three years at 6.1 percent.

It is fashionable to blame monetary tightening for the investment slump, and while it has contributed to the moderation – as it was meant to – the more important reason lies with government policy inaction and the fallout from the corruption scandals that hurt business confidence.

(Source: CNBC)