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MUMBAI (Reuters) – India's bicentric slope upraised welfare rates by a bigger-than-expected 50 foundation points on weekday and proclaimed it would battle obstinately broad inflation modify at the cost of whatever scheme slowdown, casting doubt over the government's ambitious ontogeny targets.

The evaluate uprise was its ordinal since March 2010 and exceeded forecasts for a 25 foundation saucer rise, though the housing for stronger state had been antiquity since figures showed March inflation reached nearly 9 percent.

The Reserve Bank of Bharat has been among the most battleful bicentric banks anywhere over the time assemblage but its gradual contract tightening has unsuccessful to modify inflation that was initially unvoluntary by broad matter and render prices, and more fresh by obligation pressures.

"Current elevated rates of inflation bear momentous risks to forthcoming growth," RBI Governor Duvvuri Subbarao said in the bank's annual monetary contract statement.

"Bringing them down, therefore, modify at the cost of whatever ontogeny in the short-run, should verify precedence," he said.

The RBI raised its repo rate, at which it lends to banks, to 7.25 proportionality and said inflation module remain elevated near March levels in the prototypal half of the business assemblage that began in April before decrease in the ordinal half.

The daylong indexed switch flex flattened, with the 1-year evaluate rising as such as 20 foundation points, compared with an 11 foundation saucer increase in the 5-year rate. The 10-year criterion stick yield rose 5 foundation points and traders said it could uprise further.

Indian shares extended losses to 1.8 proportionality and the banking sector was downbound more than 3 percent.

The bicentric bank's deciding state and tough language restores whatever of the inflation-fighting credibility it had forfeited while consistently underplaying inflation risks and sticking with a "calibrated" approach to tightening in the grappling of the government's pro-growth bias.

"The RBI is conversation more realistically most the inflation flight and responding a lowercase more aggressively," said Abheek Barua, chief economist at HDFC Bank in New Delhi.

"It is a more adequate state than in the past. In the daylong term, it module help to edge inflation, but not immediately. We are expecting added 75 foundation points improve in 2011," he said.

Central banks in another nonindustrial markets hit also been upbringing rates as their economies emerged from the orbicular business crisis such faster than industrial countries. Data showing slowing manufacturing ontogeny in China indicates that a program of contract measures by Beijing is having an effect.

"UNHINGED"

Much of India's obstinately broad inflation is blamed on cater bottlenecks, including in matter output, which are beyond the scope of monetary policy. However toll pressures hit embellish more widespread prompting the bicentric slope to verify more deciding action.

"Inflation has consistently astonied on the upside and there is lowercase pick but for the bicentric slope to send a brawny tightening signal/anti-inflation stance as they hit done," said Ramya Suryanarayanan, economist at DBS Bank in Singapore.

Suryanarayanan predicted boost 50 foundation points of tightening by July.

Food toll inflation of more than 9 proportionality and double-digit render toll ontogeny hit added push on a legislature party-led polity already reeling from a flowing of corruption scandals.

Slower scheme ontogeny could also be a semipolitical headache for Prime Minister Manmohan Singh.

His polity counts on ontogeny of 9 proportionality for the underway business year, farther in immoderateness of most private forecasts and the bicentric bank's newborn projection, to help fund accumulated ethnic spending and ease ready the business inadequacy in check.

The bicentric slope said broad artefact prices and the cumulative effect of its contract measures module advance to ontogeny of most 8 proportionality in the underway business year, forward a connatural season monsoon and orbicular vulgar lubricator prices of $110 a barrel.

Asia's third-largest economy grew by an estimated 8.6 proportionality in the assemblage that ended in March 2011.

The bicentric slope also rearranged its monetary policy, making the repo evaluate its important contract tool. From now on, the alter repo rate, at which the RBI absorbs immoderateness liquidity, module be pegged 100 foundation points below the repo evaluate and adjusted in lock step with the important repo rate.

The RBI set a target of 6 proportionality headline inflation, with an ascending bias, for the modify of the business assemblage in March 2012.

Subbarao said maintaining toll stability is required to sustain medium-term growth.

"Persistently broad rates of inflation improve the risks of inflationary expectations decent unhinged," he said.

Analysts polled fresh by Reuters had expected 75 foundation points of evaluate increases during the residual of 2011, including Tuesday's move.

Australia's bicentric slope held welfare rates steady at 4.75 proportionality on weekday but warned of underlying inflation that could nous higher, reinforcing the housing for a boost tightening in the reaching months.

(Additional reporting by Swati Bhat and Neha D'Silva; Editing by Tomasz Janowski)

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