Lowering interest rates in India would be a "policy mistake" for the country's central bank, according to one economist.
According to Shilan Shah, senior India economist at London-based research consultancy Capital Economics, that's because such a move by the Reserve Bank of India could lead to higher expectations of inflation and an increased risk of actual inflation.
While the country's retail inflation did drop to an 18-month low of 2.19 percent last month, the primary driver was lower fuel prices — a "very volatile component" of the Consumer Price Index basket, Shah said. Sliding food prices have also contributed to the lower inflation rate, he noted.
But, speaking to CNBC's "Street Signs" on Tuesday, Shah said cutting interest rates would not be reflective of where India is in the economic cycle. In other words, the Indian economy is growing at a healthy clip, so any extra stimulation from the central bank risks overheating it.
"If we dig a little bit deeper, core inflation is still fairly elevated," he said. "And that's mainly a reflection of the fact that the economy has actually been performing pretty well over the past few months."