INTERVIEW - RBI's Mohan says consumer prices to fall

LONDON (Reuters) - Consumer prices in India will likely fall in the months ahead, and inflation is no worry for the country's central bank, its deputy governor said on Thursday.

India's rate of annual inflation unexpectedly rose in the second week of April with higher food and manufactured product prices, according to official figures published on Thursday.

"We do not have any concern about inflation as of now .... We do expect consumer prices to come down in the coming months," Rakesh Mohan, Reserve Bank of India Deputy Governor, told Reuters in an interview.

The central bank expects Indian economic growth to slide to six percent in 2009/2010, the weakest in seven years, and this week cut its key interest rates for the sixth time in seven months in fend off the steeper than expected economic slowdown.

Speaking on the sidelines of the London Business School's India business forum, Mohan also said the central bank's efforts to boost banking liquidity was lowering the cost of corporate bond issuance and offering a financing alternative to Indian companies at a time when domestic banks were reluctant to lower lending rates.

"Corporate sector borrowers have the alternative of borrowing through the issuance of commercial paper in the market and that will put pressure on the banks," Mohan said.

Mohan said Indian commercial banks were understandably slow to respond to the central bank's call to lower their lending and deposit rates to help revive economic demand because they are fearful of a flight of deposits to India's savings post bank and other government-backed savings schemes.

"The banks make their own decisions. We don't tell them as a regulator or as a central bank what their lending rates should be," he said.

On Tuesday, the Reserve Bank of India cut its repo lending rate to 4.75 percent from 5 percent and its reserve repo rate, at which it absorbs surplus cash from the banking system, to 3.25 percent from 3.50 percent.