Repo rate is the rate at which the central bank lends money to commercial banks.
The rate hike announced by the Reserve Bank of India was a surprise since the inflation rate has been slowing largely because of lower food prices.
Last month, wholesale prices, the main gauge of inflation in India, fell to 6.16 percent while the consumer price index, which measures retail inflation, eased to 9.87 percent last month from double digits earlier.
However, from the bank's perspective, the rates need to come down further.
"It is critical to address these risks to the inflation outlook resolutely in order to stabilize and anchor inflation expectations, even while recognizing the economy is weak and substantial fiscal tightening is likely in [the current quarter]," Gov. Raghuram Rajan said on the bank's web site.
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