The Reserve Bank of India raised its key lending rate by 25 basis points to 5.50 per cent on Wednesday, shifting its policy stance to "calibrated tightening" as it battles stubborn price pressures.

The central bank's rate-setting panel voted to lift the repo rate, the rate at which it lends to commercial banks. A higher repo rate usually makes loans, including home and car loans, more expensive for borrowers.

The RBI also revised its projections for the year. It now expects India's economy to grow 7.1 per cent in FY27, while inflation is forecast at 5.2 per cent.

Markets reacted negatively to the move. The Sensex fell 429 points and the Nifty dropped 173 points as investors weighed the impact of tighter credit on company earnings.

The stance of "calibrated tightening" signals that the central bank may raise rates further if inflation stays high. The RBI had been on hold before this decision, watching global trade tensions and food prices.

Economists say the hike aims to cool demand and anchor inflation expectations. The next policy review will be watched closely for clues on whether more tightening is ahead.