It is expected by majority of economists that a rise in lending rates by another 25 basis points is likely from the kitty of RBI. The rise is expected to come by next week when the RBI sits for the monetary policy review on July 27.
With growing double digit inflation since the last five months coupled with expectations of 8.5% economic growth this fiscal, the policy tightening steps by RBI seems more evident.
The rates have so far been raised three times each by 25 bps by the apex bank in this year. The hike which came on July 2 was a total surprise for banks as well as the financial services sector.
"My sense is unless we see a strong pick up in domestic demand both for credit, investment and for the economic activity in general, we might see a little bit of a softer approach towards policy tightening than initially thought," said Saugata Bhattacharya, an economist with Axis Bank in Mumbai.
Economists feel that the repo rate would see a 50 bps hike by December 2010 and so also the reverse repo rate. Cash reserve ratio (CRR) is however expected to show no change owing to tight liquidity conditions prevailing in the economy.