RBI quite timid in combating inflation: Jerome Booth

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European stocks continued to drift with investors unwilling to make any daring moves after Moody's downgraded the sovereign ratings of six euro-zone countries and as doubts about the implementation of Greek austerity measures crept in.

According to Jerome Booth, head of research at Ashmore Investment, the important thing for EU is to avoid contagion from a Greek default. He believes there will be a clear distinction in the mind of investors between Greece and other countries, once the events in Greece come to some sort of conclusion.

"We may actually see a very strong recovery in confidence and in the remaining government bond markets, which are still under pressure elsewhere in eurozone," he adds.

However, he cautions that issues in the US and UK economy will take a very long time to resolve.

Closer to home, Booth sees "extraordinarily good" value in emerging markets (EMs) and says any volatility should be used as an opportunity to buy more.

As far as India is concerned, Booth says, equities here are at a premium to other EMs.

"I think the central bank has been a bit timid in using its quite huge reserves to combat inflation. I think an obvious thing to do is to let the currency appreciate. I don't believe the RBI needs the reserves that they have. They are excessively large, but we will have to see how that works out," he told CNBC-TV18

He expects the rupee to appreciate further and move in-line with its Asian peers.

Below is an edited transcript of Booth's exclusive interview on CNBC-TV18. Also watch the attached video.

Q: There have been mixed news from Greece over the last couple of days. What's the right way to read it?

A: I think the important thing for EU is to avoid contagion from a Greek default and I think that is more important than avoiding a Greek default. I think in a way if Greek default is seen to be an attractive option for other countries; that's not a very good message. If it is very messy, arguably that will encourage others to avoid default and I think that is reasonably likely. It's likely that once you get the events in Greece coming to some sort of conclusion then we may actually see a very clear distinction in the mind of investors between Greece and other countries. I think we may actually see a very strong recovery in confidence and in the remaining government bond markets which are still under pressure elsewhere in the eurozone.