Leading domestic and global banks on Thursday predicted that the Reserve Bank is likely to further increase policy rates next week to rein in inflation.
"There is a clear bias for the policy rates to move up for the reason that inflation is still very high and inflationary expectation is to be contained. The bias is going to be upward," Union Bank of India CMD M V Nair said when asked about his forecast for the upcoming credit policy.
He said the RBI may go for a hike in its upcoming policy review on July 27.
"... At that point in time, if the funding cost goes up, then the base rate will go up. During the year, there is a clear bias for interest rates to move up," he said.
On money supply, Nair said a liquidity shortage currently prevails in the country.
Punjab National Bank Chairman and Managing Director K R Kamath said whatever decision RBI takes during its policy review, the banks would respond accordingly.
Without hazarding a guess on the possible monetary action in the RBI's July policy review, Kamath said if the RBI raises the cash reserve ratio, this would put pressure on the cost of funds.
Earlier this month, the RBI had raised the short-term borrowing and lending rates by 25 basis points to tame inflation.
Wholesale inflation is currently in double digits, led by high food prices, and stood at 10.55 per cent for the month of June.
Data released on Thursday shows that the food inflation had eased marginally to 12.47 per cent for the week ended July 10 from 12.81 per cent in the previous week.
Foreign lender Royal Bank of Scotland also said the RBI is likely to hike its policy rates by up to one percentage point this year.