"(As in) last few months and, I expect, the next few quarters, (RBI) will be primarily engaged in combating inflation," he told reporters on the sidelines of an SBI event here. He said: "We are watching the inflation situation. Food prices have had an effect in the last couple of months." The Governor hoped food prices would come down with appropriate food management by the government.
"But both the government and the RBI are watching and have to be vigilant in this," Rajan said. Headline inflation accelerated to a five-month high of 6.01 per cent in May from 5.2 per cent in the previous month, driven by high food and fuel inflation. On the Iraq crisis, where infighting has affected global crude oil prices and the rupee, Rajan said India is better prepared to deal with any fallout.
"As far as the external front goes, we are in much better position than we were last year. We have sufficient reserves. The CAD is low. And I think one should not worry too much on external environment front," Rajan said. He said that since oil resources are in the south of Iraq, infighting has not directly affected the oil business.
"The issue in Iraq is still an area of uncertainty. It is an issue that we are watching, and of course all should be concerned with the fighting in Iraq," he added. He said that with the narrowing of the current account deficit (CAD) and strong forex reserves, the country's external situation remains less worrisome. The Iraq crisis has erupted when the new government is gearing up to formulate its first Budget amid a slowing economy and high inflation, particularly in the food segment.