Economists at Standard Chartered Bank feel that the inflation affecting the economy so drastically would stay for more time, and to counter that the central bank would increase its key overnight rates as well as reserve requirement. Standard Chartered Bank said in a note that this step would be taken to curtail inflation which is running at 13-year highs, in the fiscal year 2008-09.

India has seen a inflation rate not seen in the last decade, when after a rise in state-set fuel prices, inflation shot to 11.05 percent in early June. This has prompted the finance minister to warn of stronger anti-inflation measures.

"Not only is the headline inflation figures disturbing, it is likely to get entrenched as higher input costs are passed over to consumers," Suchita Mehta and Anubhuti Sahay, economists at Standard Chartered Bank wrote in that note.

The Reserve Bank of India had raised the repo rate for the first time in 14 months by 25 basis points to 8 percent this month.

They also noted the trends being seen in the market with manufacturers of cars, tyres, and fast moving consumer goods all raising their prices recently. The economists feel that this is likely to translate into higher inflation in the weeks ahead.

"Inflation could be in double-digits till atleast this September," they noted.

They further wrote that a real gross domestic product growth of 9 percent in the economy last year was higher than market expectations and though manufacturing has shown a sign of moderation, growth still appears relatively resilient based on aggregate figures.

"With this being a pre-election year, the focus of policy makers will be to curtail inflation at the cost of slower growth," wrote Mehta and Sahay.

The bank expects the RBI to increase both the repo rate and the reverse repo rate by 100 basis points in financial year 2008-09. In addition to this, they also expect the cash reserve ratio to rise by 75 basis points in the second half of the year.