Mumbai: The unexpected global slowdown may actually help the Reserve Bank of India in succeeding to restrict capital in flows. RBI has been forced in to tight balancing act of managing the contradiction of sucking out liquidity from the system by tightening money supply to contain inflation and also having to buy dollars that increase liquidity in to the system to manage the appreciating rupee

Paul D Mortimer-Lee, head of market economics, BNP Paribas, says "As the risk appetite decreases globally, there could be a reduction in capital flows to India, which would make the task easier for RBI."

Lee feels that the US economy could expect aggressive fed rate cuts by about 0.5 per cent in May-June, while the Eurozone is likely to weaken as consumption remains lacklustre. Japan, he says has hit a soft patch and inflation has stopped rising.

Projecting a modest GDP growth of 8 per cent for India, Mortimer-Lee felt that money supply continued to be high and high inflation signalled overheating of the economy.

"There is overheating which is signaled by high inflation and even the money supply growth remains very high," he said.

On the decision to ban the futures trading in wheat, lee felt that he was unconvinced that high commodity prices was a result of speculation.

The prices on the futures market are a signal about the supply side pressures building up, he added.