A possible US-led war against oil-rich Iraq is likely to have a limited impact on Indian interest rates and inflation, central bank governor Bimal Jalan said on Friday.

He added India was not planning to issue dollar denominated bonds to repay offshore debt.

"To the best of my knowledge there are no such plans (to raise funds) through a sovereign bond issue," Jalan told reporters at the sidelines of a money market dealers' seminar.

Yields on government bonds have risen to near seven-week highs in recent days, as traders fear that a war in Iraq could push up prices of crude oil, India's biggest import item, stoking domestic inflation and putting pressure on low interest rates.

But Jalan said India would be able to handle the impact of high oil prices.

"Naturally if oil prices rise it will have a marginal impact on inflation," Jalan said. "But we can handle the impact."

Economists say for every dollar rise per barrel of crude oil, the inflation rate climbs half a percentage point.

India's annual inflation was 3.72 per cent in the week ended January 11, compared with 3.66 per cent in the previous week and 3.02 per cent at the end of October.