A spiralling inflation is likely to force the Reserve Bank of India [Get Quote] to up the Cash Reserve Ratio by 0.75 per cent in FY 09, along with a 1 per cent hike in repo and reverse repo rates, global financial services major, StanChart said.

"The high inflation necessitates swift policy response . . . we now expect the repo and reverse repo rates to be increased by 1 per cent in the current fiscal. CRR is also expected to be increased by 0.75 per cent during the second half of FY 09," StanChart said in its report on Monday.

In a bid to check the runaway inflation, the RBI had hiked the CRR by 0.5 per cent on April 17 to check inflation.

"Based on our estimates, inflation could still be at 9.2 per cent against our earlier estimate of 8.72 per cent for the fiscal year 08-09," StanChart said.

The tax concessions on fuel prices, issuance of oil bonds and fertiliser subsidies are already taking a toll on the fiscal balance, which could push the fiscal deficit of the government to above 6.5 per cent of GDP as against the budgeted deficit of 2.5 per cent, it said.

"A higher fiscal deficit not only will crowd out private investment, but also likely to be inflationary as well," StanChart said.