NEW DELHI, April 17: India’s central bank ramped up its fight against inflation on Thursday, moving to cool demand by reducing money available for commercial loans, while leaving short-term borrowing rates unchanged.

The move comes as the Indian government attempts to wrestle down inflation, driven by soaring global prices of basic foods such as rice, which have hit hard India’s impoverished millions.

With elections looming in a year, the Congress-led government has made fighting inflation -- running at a three-year high -- its top priority, fearing a backlash from the poor, its key support base.

The surprise 50-basis point hike in the cash reserve ratio (CRR) to 8.0 per cent came after data earlier in the day showed annual inflation had dropped slightly but was still around 7.14 per cent.

“In the light of current macroeconomic, monetary and anticipated liquidity conditions, and with a view to containing inflation expectations, it is essential to take appropriate action on an urgent basis,” the bank said.

The Reserve Bank of India noted inflation according to the Wholesale Price Index stood at just 3.83 per cent on Jan 12 in Asia’s third largest economy and has climbed steeply since.

Rising prices mean inflation expectations need “to be monitored and moderated,” said the bank, which announced the tightening less than two weeks ahead of its annual policy meeting.

The bank’s aggressive tightening cycle, which began in 2004, has slowed economic growth with some economists forecasting it will fall as low as seven per cent in this fiscal year to March 2009 from around 8.8 per cent last year and 9.6 per cent the previous year.

Analysts said more tightening measures could be in store on the day of the bank’s policy meeting on April 28.

“They may want to raise one of the signal official rates and perhaps they didn’t want to pack it all into one day,” said Abheek Barua, chief economist of India’s HDFC Bank.

The bank’s main monetary tool, the repo rate, through which it lends cash to banks, has remained unchanged for the past year at 7.75 per cent. The cash reserve ratio was last raised in November to 7.50 per cent.—AFP