India's wholesale price inflation (WPI) 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.
Rajan says taking away bonds regulation from RBI may hamper mkt
Reserve Bank of India Governor Raghuram Rajan said on Tuesday he was not in favour of taking regulation of bond markets away from the central bank by the Narendra Modi govt as the move may hamper development of the market.
However, Rajan said the RBI will not stand in the way if the government wanted to manage its own debt.
The government-appointed Financial Sector Legislative Reforms Commission (FSLRC) has recommended a slew of reforms to overhaul the sector.
"I don't believe the government suffers any less from conflicts of interest in debt management (unlike the views of the FSLRC), but the RBI could well carry out the government's instructions without any loss in welfare," Rajan said in a speech at an industry event.
'India watching Iraq, economy prepared to deal with shocks'
Rajan said the country is watching the Iraq situation, but despite the uncertainty the domestic economy is better prepared to deal with any shocks on the external front.
The Indian currency tumbled to its lowest level in nearly two months on Tuesday on the worsening geo-political crisis in Iraq.
Brent crude futures held near $113 per barrel with the United States considering air strikes in Iraq as the security situation worsens in the key oil producing country.
"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.
"We have sufficient reserves, the current account deficit is low. So I think one shouldn't worry too much about the external side at this point."