"This (rate hike) was on the expected lines as the core inflation hardened (in May) ... RBI has sought to maintain an interest rate environment that moderates inflation and check inflationary expectations," the Finance Ministry said in a statement.
Headline inflation, as measured by the wholesale price index (WPI), was 9.7 per cent in March, 8.7 per cent in April and 9.1 per cent in the following month.
RBI said given the recent pattern, inflation numbers for April and May are likely to be revised upward.
In the mid-quarter monetary policy review today, the central bank raised its short-term lending rate, or repo rate, by 25 basis points to 7.5 per cent.
Expressing concern on the hardening of inflationary pressures, the ministry said bringing in price stability is paramount for sustaining high growth.
"We need to have better price stability for sustaining growth in the medium term," it said.
RBI has pegged the country's economic growth in the current fiscal at around 8 per cent, against 8.6 per cent in the previous year.
India aims to grow at 9-9.5 per cent in the next Five- Year Plan beginning April 2012.
"...the headline numbers understate the pressures because fuel prices have yet to reflect global crude prices," it added.
