"We are watching inflation situation. Food prices have had an effect in the last couple of months," RBI Governor Raghuram Rajan said, adding food prices may come down with appropriate food management by the government.
"But both the government and the RBI is watching and have to be vigilant in this," he said while talking to reporters on the sidelines of an SBI event here.
India's wholesale price inflation hit a five-month high in May and prospects of weak summer monsoon rains and turmoil in Iraq have increased the risk of rising food and fuel prices.

In May, wholesale prices rose a faster-than-expected 6.01 percent as a 19 percent increase in potato prices during the month pushed up food inflation to 9.50 percent from 8.64 percent in April.

Next few quarters will be engaged in combating inflation: RBI Governor

Rajan said the next few quarters would be engaged in combating inflation.

He outlined two tasks - infrastructure financing and financial inclusion - which the central bank will have to deal with in medium term.
"One is ensuring that there is adequate finance for infrastructure and that is a task on which you will see some policy changes soon, and the second is enabling financial inclusion," he said.

India keeping close eye on developments in Iraq

Rajan further said the central bank is keeping a close eye on the developments in Iraq but despite the uncertainty the domestic economy is better prepared to deal with any shocks on the external front.

“We have been closely monitoring the situation in Iraq. But India is in a better position to meet external sector challenges as it has sufficient reserves and low Current Account Deficit,” Rajan said.

The rupee tumbled to its lowest level in nearly two months on Tuesday on the worsening geo-political crisis in Iraq.

"I think as far as the external front goes, we are in a much better position than we were last year," Rajan said on the sidelines of an industry event.

Prime Minister Narendra Modi, who took charge on May 26, has listed fighting inflation, particularly food inflation, as his priority.
The low rainfall will make it harder for him to bring prices under control.

The weather department has predicted below average rainfall between June-September this year, which could hit summer crops such as rice, corn, soybean and cotton, exacerbating price pressures and impacting economic growth.

Hoarding also responsible for rising inflation: Jaitley
Attributing rise in inflation partly to withholding of food stocks by traders, Finance Minister Arun Jaitley has said the Centre is committed to ease supply side bottlenecks and asked states to take firm measures against hoarders to check speculation.
"The Government is seized of the matter and is committed to ease supply side constraints. The rise in prices of food articles can also be attributed to withholding of stocks on account of apprehension of a weak monsoon," he said.

Referring to the rupee slide against dollar, he said, “The Government is watching the movement of rupee closely. The slight instability of rupee is essentially because of Iraq oil shocks and global fear of oil price rise.”

RBI steps in to check rupee’s fall

The Reserve Bank of India was spotted selling dollars around 60.49/50 rupee-level through state-owned banks to check the rupee's sharp fall, traders said on Tuesday.

At 10:48 am, the rupee was at 60.3450/3525 per dollar after falling to as low as 60.55, a level last seen on April 29. The rupee had ended at 60.1550/1650 per dollar on Monday.

The rupee had dropped to a two-month low in early trade on Tuesday as oil companies rushed to buy the greenback as escalating crisis in Iraq triggered concerns over inflation and CAD.


Latest News  from Business News Desk