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Last Updated: Thursday, 15 February 2007, 10:13 GMT
Leading Indian banks raise rates
Indian banknotes
Banks now have to keep 6% of cash on deposit, up from 5.5%
Three state-run Indian banks have raised their lending rates as inflation pressures in the economy grow.

India's central bank tightened monetary policy for the second time in two weeks on Tuesday by increasing the amount of cash banks must keep on deposit.

Now the Bank of Baroda, Bank of India and Punjab National Bank, all of which are state-run, have raised their prime rates by half a percentage point.

Figures released on Thursday showed wholesale inflation rising to 6.73%.

The government also announced that it was cutting the retail price of petrol by two rupees (4.5 cents; 2 pence) a litre and diesel by one rupee a litre.

The current measures should start to hit inflation soon, according to Rajeev Malik from JP Morgan.

"Taken together with recent import duty cuts, monetary tightening and more duty cuts in the budget, inflation should begin to come off in the next month or so," he predicted.

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