New Delhi: Facing the pinch of high inflation, the Reserve Bank of India is likely to raise the interest rates by another 0.25 percent in its first quarterly review of monetary policy 2011-12 on Tuesday.

HDFC Bank chief economist Abheek Barua said, "The RBI rate action will continue to be driven somewhat mechanically by the inflation data that remains way above its comfort zone. Thus, a 0.25 percent hike in the interest rate seems almost certain."

He added that while the surge of inflation has been controlled, the industrial sector has already taken bearing. In such a condition there is no scope of increasing the interest rates beyond a point.

However, there is fair chance of increase of one-fourth percent in the repo rate (short-term interest rates by RBI.)

"Inflation is at an unacceptable level in June at 9.44% year-on-year, and growth moderation has yet to become broad-based. We expect another 25 bps increase in the repo rate (currently at 7.50%) from the RBI to reiterate its anti-inflationary stance," said Samiran Chakraborty, regional head of research at Standard Chartered Bank.

Kotak Mahindra Bank Group CFO Jaimin Bhatt said, “Even if the Inflation rate is increasing, but there are signs of its softening and in such conditions the Central bank should wait. In fact, the banks are also not in favour of increasing the interest rates as this would affect the rate of loans.”

It is to be noted that the government has already lowered India's GDP projection for 2011-12 to 8.6 per cent from the earlier estimate of about 9 per cent on account of slowdown in industry output.

Taking into consideration all these issues and slackening of credit growth, bankers have suggested the RBI to hold the rates at the current levels and sought a clearer picture on the future interest rates and inflation scenario.

Endorsing the view, SBI Chairman Pratip Chaudhuri earlier this month had said the RBI is unlikely to hike the rate further in its upcoming review.

"As of now, in our view is it (the rate hike by RBI) will come with a lag... with a gap," Chaudhuri said, adding that he would be surprised if the RBI indeed raises the rates on July 26.

(JPN/ Bureau)