The RBI hiked its chief short-term lending and borrowing interest rates today by 0.25 percent and 0.50 percent respectively with the aim to bring inflation down to 6 percent by March 2011 from the current double digits, and projecting the economic growth to be 8.5 percent this fiscal. The increase in the borrowing and lending rates to 5.75 percent and 4.5 percent will be effective immediately.

Even earlier this month, the RBI had hiked its interest rates by 0.25 percent in its endeavour to reduce the inflation which remained above 10 percent for a continuous fifth month.

The government's decision to hike fuel prices is anticipated to be the reason why the RBI increased the projection of inflation from 5.5 to 6 percent.

According to the RBI, the monetary policy of the bank will be targeted to check the inflation levels though it will keep itself prepared for any kind of pressure built by higher inflation levels. It has also mentioned that a global slowdown can lead to significant slowing down of the Indian capital inflows as well and it may cause a restraint to domestic investments in the country.