Cautioning companies that it is "too early" to celebrate falling retail inflation, the Reserve Bank of India's deputy governor said on Friday that there was a "long way to go" before inflation eases.
HR Khan cited high input costs and 'structural' issues for food price inflation as factors for the caution.
"There are structural issues with regard to protein inflation and base effects and rural areas are also seeing inflation," Khan said at an event organised by the Confederation of India Industry (CII), Mint reported.
Khan's statement comes in the light of Finance Minister Arun Jaitley calling for easing interest rates to boost economy activity.
Markets have been rallying in anticipation of RBI announcing rate cuts in December. However, it is not sure if RBI Governor Raghuram Rajan will fall under pressure to announce any such cuts.
Rajan will hold the bi-monthly review of RBI's monetary policy on 2 December, and economists believe he may hold on to the decision of cutting rates given that the US Federal Reserve is expected to raise interest rates, Business Standard reported.
While industry leaders have reportedly backed Jaitley's call for a rate cut, a CRISIL report pointed out that it may not really do anything to spur the economy, The Economic Times reported.
In a report titled 'Will a rate cut spur investments? Not really', the agency said that "investment growth has slowed down sharply even though policy rates have been negative in real terms and real lending rates have averaged less than 3%. The primary reason for this slowdown is a sharp fall in the expected return on investments due to policy uncertainty and slowing domestic demand. In such a situation, leaning on monetary policy to revive investments will yield little benefit".
What has further sparked speculations of a rate cut is the consumer prices-based inflation slowing down to 6.46% in September, its lowest since January 2012.
The fall in the rate of CPI-based inflation has been linked with softening food prices, but prices of some vegetables have risen in October.
Falling crude oil prices, which dropped by 14% since the last policy review on 30 September, have also added to expectations of a rate cut.
However, Khan said that the geopolitical situation was unpredictable and that India should be cautious.
"One cannot be sure... people say this is the bottom but I don't know. There are risks like a collapse in (oil-producing) countries like Libya, geopolitical tensions or (drop in) US production," Khan was quoted saying by Mint.
"When the global recovery is also tepid and there are these geopolitical issues, we need to be cautious when we celebrate early and we cannot be an outlier, particularly in terms of inflation from among the BRIC (Brazil, Russia, India, China) countries," Khan said.
