New Delhi, June 9: Interest rates may go up once again in end-July, if yesterday’s repo rate hike fails to tame inflation.

North Block officials feel most nations, including India, will calibrate money supply to thwart inflation, in the context of a volatile global oil market.

The good news is inflation has fallen marginally for the week ended May 27. However, economists believe it will rise to 5-5.5 per cent soon as commodity and energy prices rise.

If inflation stays at 5-5.5 per cent, further rate hikes are unlikely, but anything beyond that will certainly invite reprisals from the RBI. Though RBI sets rates, it is well-known that the central bank consults the finance ministry on such sensitive issues.

The RBI was widely expected to raise interest rates in April to check money supply, but the UPA favoured stable rates to let industry meet its expansion targets.

However, North Block officials made it clear that rate increases will not be so high that “growth would be impacted? We need to draw a balance between the need to control inflationary expectations and the need to continue to grow at a fast pace.”

A key demand of India Inc over the last few years is to keep rates low to tackle foreign competition.

North Block pointed out that rates are rising globally and “our industrialists are actually now on a more even keel than ever before compared to their European and US rivals.”

India is not the only country using money supply to fight inflation. Yesterday, the European Central Bank, Bank of Korea and South African Reserve Bank all raised their rates, sending Asian stocks into a tailspin.

The US Federal Reserve is expected to raise treasury bond rates once again by a quarter percentage point later this month (the Fed has raised rates by as many as 12 times in the last one year compared with five by the Reserve Bank since October 2004).

Rate increases help in many ways: besides curbing inflation by sapping out money from the system, it helps to retain or attract foreign currency into Indian banks.

Remittances from NRI workers make up a huge chunk of India's foreign exchange reserves, helping to stabilise the rupee in the global markets. This is necessary to keep exchange rate risks low both for the country's burgeoning export and infrastructure sector.