Hyderabad: The pressure on food inflation is still very strong and the risk of inflation is quite significant, Reserve Bank of India deputy governor Subir Gokarn said on Tuesday. The wholesale price index (WPI), which is the main inflation indicator, rose an annual 6.89% in March, higher than the 6.7% rise estimated by analysts, as food inflation shot up even as manufacturing inflation eased, he said, adding that there is little room to cut interest rates now.

Capital flows will be the “ultimate determinant” for the currency, explaining that the widening current account deficit and a negative balance of payments are stress points for the economy, Gokarn said while addressing industry members of the Federation of Indian Chambers of Commerce and Industry (Ficci) in Hyderabad. The increase in prices of “non-traded” commodities, particularly on the food side, has led to a spike in inflation in the last few years even as global commodity prices have softened, he noted.

Gokarn said that there has been a divergence from the trend wherein the headline inflation number is not moving in sync with global commodity prices in the last few years.

“High food inflation is locally driven, products that are driving it are not traded products. Even though it may not be linked to global commodity prices, there is a significant element of commodity shock there,” he opined. On inflation, he said there was a risk that it could accelerate again, given that oil prices remain high. He also said that there was wage pressure in the HR sector. “There is a paradox of plenty as there are not too many jobs available coupled with skills shortage.”

Meanwhile, RBI has resumed buying government bonds this week as the current pressure on liquidity is not short-lived.