Mumbai, October 31:

India’s central bank today raised its short-term lending rate by quarter point to 7.25 per cent amid signs that the economy is showing signs of overheating due to robust industrial growth and expanding demand for bank credit.

The rate, also known as the repurchase rate, is the rate that banks and financial instititutions can borrow from the Reserve Bank of India (RBI).

However, the central bank kept two other key rates unchanged. It kept the short-term borrowing rate at six per cent and the bank rate — widely regarded as a benchmark for banks’ lending rates — unchanged at a 33-year low of six per cent.

India’s economy grew by 8.9 per cent in the April-June quarter from a year ago, fueled by strong gro-wth in services and manufacturing.

The central bank held steady its estimate of inflation for the fiscal year at five per cent to 5.5 per cent. India faces a tough call on interest rates as it balances the need to keep inflation in check and ensure a fast growing economy remains on track.