Battling high prices, the RBI today made its lending and borrowing activity with banks expensive by 25 basis points, but bankers said that they would not increase their commercial lending rates for now in view of the festival season.

While raising the short-term lending (repo) and borrowing (reverse repo) rates to 6.25 per cent and 5.25 per cent, respectively, the central bank kept its benchmark lending rate (Bank Rate) and CRR unchanged at 6 per cent.

The Planning Commission said the move was in sync with the actions of other central banks, while the Finance Ministry described it as a good balancing act to tame inflation without hurting growth.

The industry, however, feared that the hike in the key rates could make loans costlier and hit the growth momentum.

This was the sixth time this year that the RBI has raised repo and reverse repo rates. The apex bank, however, hoped that going forward it may not have to up the rates further.

"I see this more as a signal of getting back to normal interest rate regime," Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters.

"So, whether it (hike by RBI) will raise pressure on the system? Eventually, it will. Whether there would be immediate reaction? Not likely," said SBI Chairman O P Bhatt.

In the mid-year review of its monetary policy, the central bank also tightened norms for upper-end housing loans to check asset bubble, and possible defaults.

Although banks said they would refrain from immediately hiking rates, they may not be able to hold on to the existing rate-level for long as demand for credit increases and depositors put pressure on them to raise interest rates.

Realty companies said this may not have any negative impact on home demand.

The RBI also asked banks to keep more money aside for teaser home loans as a cushion in case of defaults on such a product. Teaser home loans are given at low interest rates for initial years.

"It has been decided to increase the repo rate by 25 basis points from 6 per cent to 6.25 per cent with immediate effect...It has been decided to increase the reverse repo by 25 basis points from 5 per cent to 5.25 per cent," RBI said.

The RBI said its moves are expected to "rein in rising inflationary expectations...be moderate enough not to disrupt growth."

Meanwhile, RBI said that even in the background of uncertain economic revival in advanced economies, the Indian economy is on a growth momentum, despite volatile nature of industrial numbers.

It pegged inflation at 5.5 per cent by the fiscal-end, but it should not be confused with reducing the target for rate of price rise from earlier six per cent, since the new projection is based on new series.