Wholesale price inflation fell to an eight-month low of 7.45 per cent in October from 7.81 per cent in September but this is still far from the Reserve Bank's comfort zone, it says.
RBI had refused to cut the repo rate, at which it lends to banks, in its October policy review due to high inflation.
When asked whether RBI was comfortable with the October inflation rate, Deputy Governor K C Chakrabarty told reporters, "How can it be? Then, you will say you are comfortable with even 8 per cent inflation."
Adding: "Banks will have to reduce their costs of deposits. Only then will it (RBI) be able to reduce lending rates. If inflation is high, interest rates will be under pressure."
Chakrabarty was talking to reporters on the sidelines of a review meeting of public sector banks chaired by Finance Minister P Chidambaram. RBI Governor D Subbarao had refrained from cutting the benchmark interest rate in the monetary policy review last month, despite Chidambaram issuing a road map for fiscal consolidation.
However, RBI had reduced banks' cash reserve ratio by 0.25 per cent to infuse additional liquidity of Rs 17,500 crore (Rs 175 billion)