Faint signs of an industrial revival and rising inflation have virtually obliterated the prospects of further cuts in interest rates.

A cross-section of bankers, economists and market analysts said interest rates had bottomed and the Reserve Bank of India was unlikely to push for a further rate cut.

"The low interest rate regime may be over. From now on, it will be up to the markets to take the call," said a senior banker.

Over the past two years, the central bank has been pushing the system by lowering the bank rate and repo rates. Industry observers feel the RBI will not pursue this any more.

They are also ruling out any change in the savings bank rate, the last of the regulated rates.

“At 4 per cent, the savings bank rate may seem out of sync with a system where 10-year money costs a shade over 6 per cent. But the RBI is unlikely to tinker with the savings bank rate,” a senior banker said.

Analysts said over the past two years, when industrial recovery was slow, it was natural for the central bank to pursue a soft monetary policy but it would discontinue with that bias as the economy gained steam.

However, there could be a change in the RBI's stance if the industrial outlook suddenly changes for the worse.

Inflation, year on year, rose to 4.42 per cent in the week ended January 18 from 3.72 per cent a week earlier and analysts see it touching 5 per cent before the end of the financial year as demand for manufactured goods increases.

The government expects the economy to grow 5-5.5 per cent in 2002-03. This is based on expectations of strong growth in the industrial and services sectors, which will offset a drop in farm output.

The benchmark 10-year bond fell to a record low of 5.82 per cent on January 15, a fall of over a percentage point since October 29, when the central bank cut key rates by half a percentage point each.

The yield has since risen to 6.27 per cent. The spread between the 10- and 24-year bond yields rose to 50 basis points from 40 two weeks ago.