Annual inflation in March hit 9.9%
The Reserve Bank of India (RBI) has raised key interest rates by a quarter of a percentage point in an attempt to curb near double-digit inflation.
The rise was the second in a month and was in line with analysts' forecasts.
The repo rate - the rate at which the central bank lends to commercial banks - was raised to 5.25% from 5%.
The cash reserve ratio - the percentage of banks' deposits they must keep in cash - was raised to 6% in a move to drain money in the financial system.
It also raised the reverse repo - the rate it pays to banks for deposits - to 3.75%.
Annual inflation has risen sharply over the last few months, from 0.5% in September to 9.9% in March, its highest in 17 months.
"Developments on the inflation front are worrisome," RBI governor Duvvuri Subbarao said in a statement.
"With the recovery now firmly in place, we need to move in a calibrated manner in the direction of normalising our policy instruments."