The Reserve Bank of India (RBI) is reportedly in no mood to cut interest in the near-term as inflation continues to impact food and non-food prices, and the Government fails to put breaks on its fiscal profligacy.

K.C. Chakrabarty, Deputy Governor RBI was quoted as saying that interest rates will fall when inflation drops. RBI will assess if the inflation fall is sustainable. Inflation of about 5% is within India’s comfort zone.

He also warned that only an improved fiscal situation could prevent a ratings downgrade.

“The RBI would take inputs from the April-June 2012 GDP numbers, August inflation data and other economic indicators between now and September 17 when it reviews the monetary policy,” Subir Gokarn, Deputy Governor was quoted as saying.

The RBI Deputy Governor said that fiscal consolidation will help in moderating inflation and lowering interest rates. 

Finance Minister P. Chidambaram has sought the help of experts such as Vijay Kelkar, Indira Rajaraman and Sanjiv Misra to prepare a roadmap for fiscal consolidation. 

The Centre's fiscal deficit rose to 5.76% of GDP in FY2011-12. 

"The best way to prevent it (ratings downgrade) would be to put in place a sustainable process of fiscal consolidation because that is the most important parameter, indicator on which that risk or threat has manifested. If we can do that reduction...that risk is averted", Gokarn told reporters in New Delhi on Thursday.

Gokarn said that steps like removing supply side constraints to bring down food inflation, FDI policy initiatives and encouraging foreign fund inflow would help in boosting India's decelerating GDP growth. 

"So these are the things which will help stimulate growth without putting pressure on inflation," he said. 

The RBI had lowered its GDP growth forecast to 6.5% for FY13 from its earlier estimate of 7.3%. 

On the decline in WPI-inflation to 6.87% in July, Gokarn said it was a welcome reduction, but added that the increase in the core inflation continues to be a matter of concern. 

"Internal dynamics are moving in opposite directions. Fuel inflation was relatively low for July... food inflation is still high. Now we have the (deficient) monsoon that might have an impact," the RBI deputy Governor said. 

On rising crude oil prices, Gokarn said it was another risk or another pressure point that has emerged on inflationary situation. 

He said easing of crude prices was providing some relief on inflation front, but now the Brent crude futures have risen back to ~US$115 a barrel. 

As regards liquidity situation, Gokarn said that it has been within the central bank's comfort zone for quite some time. Overall there are no concerns on the liquidity front, he said.