"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.
Headline inflation accelerated to five-month high of 6.01 per cent in May from 5.2 per cent previous month, mainly driven by high food and fuel inflation.
"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.
On the ongoing Iraq crisis, which has impacted global crude oil prices and also affected the rupee, Rajan said this is an area of concern.
"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," the RBI governor said.
However, he said that since the oil resources are in the south of Iraq, it has not been directly affected by the fighting.
He said that with narrowing of current account deficit and strong forex reserves, the country's external situation remains less worrisome.
"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 to much on external environment front," Rajan said.
Rajan said that going forward the RBI will have to tackle inflation for the next few quarters.
"Last few months and, I expect, the next few quarters will be primarily engaged in combating inflation," he said.
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's a task on which you will see some policy changes soon, and the second is enabling financial inclusion," he said.
On impact of Iraq crisis, Rajan pinned hopes on low CAD and high forex reserve to deal with any exigencies.
Global crude prices soaring to nine-month highs on tension in Iraq mainly weighed on the rupee, which feel to a fresh six-week low of 60.50 against the US dollar in the morning trade.
On the positive side, foreign exchange reserves rose to USD 312.59 billion as of June 6, and CAD sharply narrowed to 1.7 per cent of the GDP or USD 32.4 billion in 2013-14 from a record high of 4.7 per cent in FY13.