The recent spike in inflation is unlikely to exert upward pressure on interest rates in the economy, senior bankers said.

They said that global crude oil prices -- one of the major factors responsible for stoking inflation -- have stabilised at lower levels and hence the worst is over on the inflation front.

The wholesale price index-based inflation rate touched a two-year high of 6.24 per cent during the week ended March 29 on account of higher prices of primary goods and manufactured products.

The index for fuel has remained unchanged from the previous week. In the corresponding period of 2002, the inflation was at 1.63 per cent.

At the current inflation rate of 6.24 per cent, a depositor holding a one-year term deposit (interest rate 5.50 per cent) will earn a negative spread of 74 basis points.

In sharp contrast, a top rated borrower -- who can raise resources at as low as 9.5 per cent for a five-year period -- will effectively pay a real interest rate of 3.26 per cent.

"The inflation rate cannot be looked at in isolation. The rise could be because of a hike in oil prices, war and transporters' strike.

"Fundamentally, the liquidity position remains easy and the Reserve Bank of India has indicated that the softer stance on interest will continue. There would be possibility of a bank rate cut based on liquidity and demand, which has picked up marginally only in some sectors," said HDFC Bank's managing director Aditya Puri.

Satish Marathe, chairman & CEO, United Western Bank, said with Gulf War II drawing to a close, the inflation outlook should turn benign as crude oil prices have settled at lower levels.

"Any upward revision in interest rates will be inconsistent with the stated preference of the regulator and the finance ministry for softer interest rates," he said.

"With the manufacturing sector showing signs of a healthy pick up the central bank may, in fact, support this with a bank rate cut down the line," Marathe said.

"There is no case for interest rate adjustments to take place immediately in response to the spike in inflation. This will defeat the very idea of capital formation at a time when there is good credit offtake from the banking system," S R Narayanan, general manager, Central Bank of India, said.

Credit offtake in the last three months has been good and the RBI is unlikely take any precipitate step to undermine its softer interest rate bias.

"At present, there is no need for tinkering with the bank rate either as there is enough liquidity in the banking system to meet resource requirements of the corporate and the priority sectors," said Narayanan.

Ashish Agarwal, vice-president research of DSP Merrill Lynch, said the rise in inflation will be shrugged off by the market because a good part of the inflation is on account of higher fuel prices and primary articles.

This in turn is on account of what has happened in Iraq and the drought. Going forward, fuel prices are expected to decrease and this will pull down the inflation rate.

The RBI is not too concerned about this recent rise. Only if the core inflation (pertaining to the manufacturing sector) goes up will the central bank be worried.

The rising inflation is not likely to have any adverse impact on security prices or yields. However, if rising inflation continues in the coming months, then it will be an issue.

While real interest rates are coming down, much depends upon future inflation and average rate of inflation.