The unabated upward journey of inflation to 40-month high of 7.41 per cent may force the Reserve Bank to tighten money supply in its forthcoming annual credit policy to suck out excess liquidity from the system, according to bankers.

However, the central bank is not likely to raise interest rates as it would hurt economic growth, a majority of them said. "The Reserve Bank might hike the Cash Reserve Ratio (statutory cash balances banks maintain with the apex bank) in its credit policy if inflation remains high," IDBI's Chief Financial Officer R K Bansal told PTI.

"The bank may consider a hike in its lending rates if the RBI increases the reserve ratio. There is no other option before the (banking) industry other than hiking rates in that case," he said.

The RBI is scheduled to announce annual credit policy for fiscal 2008-09 on April 29. Given the domestic and global environment, it is likely to adopt a hawkish stance to maintain a balance between inflation and growth.

"Inflation number has come as a shock... we expect a quarter percentage hike in the cash reserve ratio and 0.25 per cent hike in the repo rate," said Yes Bank [Get Quote] CEO Rana Kapoor.

According to Standard Chartered Bank, possibility of a hike in CRR has increased. Growth has moderated in recent months and a tight money supply in the backdrop of escalating prices can slow it further.

"The central bank can resort to a CRR hike (perhaps a 50 basis points hike from the current 7.5 per cent) as a last resort if inflation continues to fly," it said.