Mumbai: There are some signs of cyclical overheating in the economy although the recent rise in the rupee has dampened inflationary pressures to some extent, C. Rangarajan, head of the prime minister''s economic advisory panel and former governor of the Reserve Bank of India, said.

Rangarajan said the rise in the rupee — it hit a nine-year high against the dollar last week — had helped dampen inflation, but the big capital inflows that had powered its rise had complicated monetary policy and currency management.

India also needed to be very careful about trying to moderate the large capital inflows into the economy, although some types could be discouraged, he told reporters at a financial conference.

"Capital flows far exceed our current account deficit. We have to be very careful about how to moderate capital flows. We should not send out wrong signals, but at the same time some kinds of capital inflows could be discouraged," he said.

"Cyclical overheating occurs when the existing capacities of an economy are being fully utilised and demand pressures are still there. Yes there is, to some extent, cyclical overheating," he said

India, Asia''s third-largest economy, has grown at an average of 8.6 per cent over the past four years. That has put pressure on the country''s inadequate infrastructure, and added to inflationary pressures in the economy.

The Reserve Bank of India raised rates five times since last June and increased banks'' reserve requirements three times since December to rein in inflation and credit growth.

The wholesale price-based inflation hit 6.7 per cent in late January, its highest in more than 2 years, and has since moderated to 5.06 per cent in mid-May.