Post double-digit inflation, the banks are gearing up to go for interest rate hikes. The assets and liability committees (ALCO) of most of the banks will be meeting this week to take a call on the interest rates on deposits as well as advances.

The banks are facing this uncertainty moment at a time when they are at the close of their first quarters of the current fiscal which ends on June 30. Union Bank of India?s ALCO is meeting in Mumbai on Monday. The bankers told the FE on the sidelines of the convocation ceremony of National Institute of Banking and Management (NIBM) at Pune on Monday that this time there was no way out other than going for interest rate hike.

The newly appointed chairman and managing director of Bank of Maharashtra, Allen CA Pereira, said that this time each bank will have to take call towards the revision of their interest rates to protect their margins. Still, Pereira stressed that sudden spurt in inflation , which was basically due to supply side constraints, was a temporary phenomenon caused by hike in oil prices globally and hoped that the inflation will come down within next few months.

JM Garg, executive director of Punjab National Bank, agreed that there was a little bit slowdown in lending, particularly in the retail borrowing.

With policy officials saying that they would take various measures to bring down inflation with ?monetary tightening likely to be the first line of defence? yields are likely to edge higher. We expect a combination of both repo/reverse repo and CRR hikes shortly, Rohini Malkani,economist, Citi Bank/Economist.

With inflation touching a 13-year high of 11.05%, the 10-year yield rose to a near 7-year high of 8.62% from 8.39% in the previous week.

A spiralling inflation is likely to force the RBI to up the Cash Reserve Ratio (CRR) by 0.75%in FY 09, along with a one per cent hike in repo and reverse repo rates, Global financial services major StanChart has said. ?The high inflation necessitates swift policy response… We now expect the repo and reverse repo rates to be increased by one per cent in the current fiscal.The CRR is also expected to be increased by 0.75 % during the second half of FY 09,? StanChart said in its report on Monday.