The drop in CPI inflation in November can be attributed to the government’s demonetisation measures, but today’s data don’t indicate that disruption to the economy has been as dramatic as some reports have suggested. A rate cut can’t be ruled out in the near term but, over the longer term, demonetisation could stoke inflationary pressure. We continue to believe that the RBI will have to tighten policy sooner than most are anticipating.
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