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Belying hopes of further rate cuts, the Reserve Bank today said there are upside risks to inflation and containing the high current account deficit would be its priority.
"Growth is significantly moderated, inflation is somewhat off its peak but there are several upside risk factors, the balance of payments is under stress and investments have to pick up," RBI Governor D Subbarao said here.
Noting that retail inflation is "still high", Subbarao said in India even as growth is decelerating, inflation is not decelerating.
"Global prices, especially commodity prices, certainly softened in the last few months. But we cannot take the soft prices for granted," he said.
While the wholesale price based inflation (WPI) fell to over three-year low of 4.89% in April, retail inflation was high at 9.39%.
Economic growth fell to a decade low of 5% in 2012-13 fiscal and is estimated to improve to 6.1-6.7% in the current year.
Subbarao further said high CAD is leading to the weakening of rupee.
"Rupee has depreciated more than compared to other economies ... Large CAD is the biggest risk factor to the economy today," he said, adding that the CAD for 2012-13 is likely to be close to 5%.
Rising gold and oil imports pushed Current Account Deficit (CAD) to a record high of 6.7% in the October-December quarter of 2012-13 fiscal.
The RBI is scheduled to announce its mid-quarter policy review on June 17. In its last review, the RBI had cut the key interest rates by 0.25%.
