Mumbai/New Delhi, June 16: Bankers and the pundits on the financial markets expect the Reserve Bank of India to raise interest rates by another 50 basis points before it winds up the current cycle of rate hikes that began in March last year.

Some expect the RBI to ratchet up rates by 50 basis points by October but others are sticking to more modest forecast of 25 basis points. There is unanimity among observers that the RBI will jack up the rate at which it provides liquidity to banks by a quarter of a percentage point in its monetary policy on July 26.

Although the mid-quarter review was hawkish when it came to inflation control, observers said there were pointers which indicated that the round of tightening might be coming to a halt later this year.

Experts said inflation was likely to remain elevated in the short-term with the government expected to raise the prices of diesel and cooking gas this month but would taper off later in the year.

Many expect the central bank to start expressing some concern about the growth in the economy even though it has flagged inflation as its Enemy No. 1 and has indicated that it is ready to sacrifice some growth to control prices.

In its review, the RBI said that given the high degree of integration with the global economy, recent global macroeconomic developments which show some moderation pose risks to domestic growth. The RBI went on to add that while it needed to continue with its anti-inflationary stance, it would have to balance the adverse movements in inflation with recent global developments and their likely impact on domestic growth.

“The overall tone of the accompanying statement remained hawkish in aggregate, but less so than in the previous one,” said Sanjay Mathur at The Royal Bank of Scotland.

Nomura’s Sonal Varma and Aman Mohunta said in a note that while the RBI was likely to raise rates by 25 basis points in July as inflation would probably stay elevated, it would pause thereafter.

Kashyap Jhaveri and Pradeep Agrawal of Emkay Global, however, felt that another 50 to 75 basis point hike in rates was likely over the remaining months of this fiscal.

Chambers, however, are not convinced that higher interest rates will do the trick. “Even with 10 upward revisions in rates since March 2010, there has been little respite on inflation,” said Chandrajit Banerjee, director-general, CII.

Ficci’s Udayan Bose said, “Aggressive monetary tightening is having an adverse bearing on growth.”