The Bank of Japan is likely to hike interest rates only once more in the current fiscal year to March 2007, given widely held prospects for continued mild inflation, a senior government policymaker said. The official, who keeps in close touch with the BoJ's policy board, told XFN-Asia affiliate Market News International that the central bank has made it clear that it will skip raising rates in August after conducting its first rate hike in six years this month. "The BoJ wants to confirm a downward revision to the CPI data in late August," said the official who declined to be named. "If the downward bias is up to 0.3 percentage point, as expected, the current 0.6 pct year-on-year rise in the core CPI will be reduced to 0.3 pct." Estimated real interest rates would still be negative and thus support the economy as the 0.3 pct inflation rate would exceed the 0.25 pct target set by the BoJ for overnight lending rates among commercial banks. "But with another rate hike, the overnight rate rises to 0.5 pct, which will be higher than expected CPI gains, and as a result, real interest rates will turn positive," the official said. The BoJ has projected that the core consumer price index, which excludes volatile fresh food prices but includes energy costs, will rise only 0.6 pct in the current fiscal year and climb 0.8 pct in fiscal 2007. On Aug 25, the government will release July national and August central Tokyo CPI figures under a new base year to correct a statistical upward bias and after a major revision to goods in its price survey to reflect more high-tech lifestyles. "The government expects the BoJ to hike rates only once more to 0.5 pct by year-end, or even by the end of March," the official said. "There is no need to raise the overnight rate to 0.75 pct during this period." "Corporate capital spending is forecast to post big gains in the current fiscal year, but the BoJ does not regard the situation as overheating," he said. Another senior Koizumi administration official said there is no big gap in views on the economy and monetary policy between the government and the BoJ. "We used to have a heated debate in the past as we demanded that the BoJ take every possible action to trigger a better circulation of money," the official told Market News. "But things have changed at the BoJ after governor (Toshihiko) Fukui took over (in March 2003)." On July 14, the BoJ's policy board voted unanimously to raise the target for the overnight call rate to 0.25 pct from near zero, ending its zero rate policy launched in March 2001. The nine-member board also voted 6-3 to raise the Lombard-type basic loan rate, the upper limit of overnight rates, to 0.4 pct from 0.1 pct. It was the first rate hike by the BoJ since August 2000, when the bank lifted its zero rate policy only to reverse course seven months later, hit by the burst of the global IT bubble.