Column : Letís not get ahead of ourselves
To be fair, there is merit to this argument. The current growth momentum (annualised sequential growth) fell to 4% in 3Q12 and is below the most sobering estimates of potential growth. Output gaps have finally closed and, in fact, turned modestly negative in India. Itís no wonder that producer-pricing power is finally being impinged, as manifested by the monthly momentum of core wholesale prices remaining very muted for three successive months. Core inflation is, therefore, at a near three-year low. All this is true and, by itself, perhaps warrants 25-50 bps of cuts in the first quarter.
But not more. And hereís why. Think about why output gaps have closed and pricing power has abated. This has not happened because investment has picked up, capacities have come on-line and pricing power has been competed away. Not by a long shot. Itís happened primarily because demand
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