The inflation of the country for the month of January rose at its fastest pace since November 2008. The whole sale price index rose 8.56 percent in January which was higher from December's 7.3 percent, according to the latest data released on Monday.

The level is higher than the estimated median of an 8.21 percent annual rise in headline inflation for the country. The annual inflation stood at 4.95 percent in January 2009.

The main factor behind the rise was higher food inflation which rose to 17.4 percent. The higher food inflation was mainly due to a weaker monsoons and flooding in 2009.

The manufacturing sector too witnessed increasing prices and the inflation in the sector rose to 6.55 percent from about 5 percent in December.

The reserve Bank of India (RBI) is expected take some measures to control increasing prices in the country after the central bank had raised banks' reserve requirements in its policy revue in January. The rise in banks' cash reserve requirements was however higher than market expectations.

RBI had raised the cash reserve ratio by 75 basis points to 5.75 per cent. This would take out Rs 36,000 crore from the monetary system and reduce excess liquidity. The bank however did not change repo or reverse repo rates which usually have a direct impact of the interest rates fixed by the banks.

The central bank could raise borrowing rates during its April review. The government has borrowed heavily from the markets and this could delay raising of the rates by RBI as it would push up borrowing costs.

On the other hand, some analysts believe that RBI could even decide to raise its rates even before its policy review in April as the inflation could touch 9% in February.

RBI has indicated earlier that the large borrowing of the government, which stood at 4.51 trillion for the current fiscal year, will influence the monetary policy of the central bank. The RBI estimates its market borrowing to be higher than this year.

The central bank raised its forecast for the wholesale price inflation for the fiscal year to 8.5 percent from 6.5 percent and it also raised its economic growth forecast for the current financial year to 7.5 percent from 6 percent.

India's industrial production rose in December by annual 16.8 percent which is the fastest growth recorded ever. The consumer index for the month of December was at 14.97 percent.

The central bank indicated during its policy review in January that it has to consider other concerns such as growth expectations and thus cannot solely focus on inflation control.