The previous UPA government had decided in January 2013 to increase diesel prices in small monthly doses until the difference between the retail price and the cost of production is bridged.
"There is no reason why the monthly increases should be discontinued. They will continue till under-recoveries (losses) on diesel are wiped out," the official said here.
The next price revision is due on Saturday. State-owned Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp currently lose Rs 4.41 on every litre of the fuel sold.
The loss, which is made good through government subsidy, has been on a declining trend since March, when it stood at Rs 8.37 a litre.
The oil firms, which skipped the monthly hike in April, raised diesel prices by Rs 1.09 a litre soon after the Lok Sabha elections ended on May 12.
Besides, losses on diesel have been coming down as the rupee strengthened against the dollar. Prospects of the BJP-led National Democratic Alliance forming the government with a full majority helped the rupee to appreciate as foreign inflows increased on improved market sentiment.
If the rupee gains to 56 to a dollar, all the losses will be wiped out and the fuel will be "automatically deregulated" (free from government control), the official said.
The rupee was quoted at 58.86 against the dollar in early morning trade.
According to oil ministry data, the rupee appreciated to Rs 59.47 per US dollar in the first half of May (based on which the current desired selling prices and the gap between it and retail price is calculated) from Rs 60.54 in the second fortnight of April.
Besides diesel, oil firms lose Rs 33.84 per litre of kerosene sold through the public distribution system, down from Rs 34.43 a litre last month. On cooking gas (LPG), the revenue loss has come down to Rs 449.13 per 14.2-kg cylinder from Rs 506.06 last month.
Since the Cabinet move last year, diesel prices had risen by a cumulative Rs 8.33 a litre in 14 instalments before the May 12 hike.
Oil marketing companies, effective April 16, now incur a combined daily under-recovery (revenue loss) of Rs 318 crore on the sale of diesel, PDS kerosene and domestic LPG. This is lower than the Rs 342 crore daily under-recovery during the previous fortnight.