The Reserve Bank on Tuesday said it is closely watching inflation situation and hoped that proper food management will help in easing of food prices.
"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.
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.