At least on two issues, there is a consensus in the banking community. When the Reserve of India Governor YV Reddy unveils the mid-term review of annual policy statement for 2004-05 on October 26, the projected GDP growth will be lowered while the target of inflation rate will be raised. The May policy had set the target for GDP growth in 2004-05 at 6.5-7 per cent and inflation rate at 5 per cent.

However, senior bankers are still groping in the dark on one key issue -- will Reddy raise interest rates or opt for status quo? In his first credit policy in November last year, Reddy had left the rates untouched but focussed on credit delivery. In May this year, once again Reddy preferred to maintain status quo in the credit policy.

The benchmark bank rate, short-term repo rate and banks' cash reserve ratio were left untouched. The Bank Rate is now at three-decade low of 6 per cent and repo rate at 4.5 per cent. The RBI, however, has recently raised the CRR to 4.75 per cent in two phases.

A section of the banking industry feels that the pressure is on the central bank to raise to short term repo rate by at least 25 basis points to 4.75 per cent. Even a 50 basis points hike to 5 per cent is also not totally ruled out.

The last time the repo rate was cut was on August 25 last year when Bimal Jalan was at the helm of affairs on Mint Road. At that time, the repo rate was cut by 50 basis points to 4.5 per cent.

Expectations of a repo rate hike have been fuelled by the rising inflation rate. The inflation breached the 8 per cent mark to record a three-and-a-half year high in August but subsequently came down to 7.2 per cent. The government did its bit by cutting import duties on steeel, petrol, diesel and edible oil.

The RBI followed it up by hiking the CRR. That also made it clear that the central bank has moved towards a tightening bias. In fact, in its annual report for 2003-04, in August, the Reserve Bank dropped broad hints that the rate movement could reverse.

However, there is an equally strong argument on why RBI would not hike the repo rate. Senior bankers said the central bank may decide to support growth over price stability.

Prime Minister Manmohan Singh has recently said in New York that one does not address supply side inflation through rate hikes. Finance Minister P Chidambaram also called for "measured response" from the central bank.

Analsysts said the RBI might not want to put growth in risk by raising the rate at this juncture when investment demand has started to pick up.

"The rising oil price may shave off one per cent of the GDP. Any hike in rate at this point may prove counter-productive. The RBI may not want to sacrifice growth in favour of price stability," said the chairman of a large bank, under condition of anonymity.