MUMBAI, July 29: India’s central bank raised its key short-term lending rate by half-a-percentage point on Tuesday in an aggressive bid to tame inflation riding at a 13-year high, prompting a major stock market sell-off.

Shares tumbled nearly four per cent after the bank announced the hike in the repo rate at which commercial banks borrow funds from the central bank.

Property, automobile and bank shares were hardest hit.

The repo rate was increased by 50 basis points to a seven-year peak of nine per cent, while the cash reserve ratio -- the percentage sum banks must keep on deposit -- was raised by a quarter point to nine per cent.

“Globally, inflationary pressures brought on by the elevated prices of crude, metal and some food prices show no signs of abating,” Reserve Bank of India Governor Y. Venugopal Reddy said in a statement.

“Looking forward, global and domestic factors pose severe challenges to monetary policy management and warrant reinforced policy actions,” he said.

The size of the repo rate rise was at the high end of analysts’ expectations. Most had only expected a quarter-point increase.

The Reserve Bank “was more aggressive than expected,” said Rupa Rege Nitsure, senior economist at the Bank of Baroda, calling the step “distinctly pre-emptive.” Another economist, Siddhartha Sanyal of brokerage Edelweiss Securities, called rate tightening both “harsh and hawkish.” The Congress-led government has been desperate to tame inflation with elections due by May 2009, fearing a voter backlash from India’s poor masses, who have been hardest hit by price rises.

The bank has tightened monetary policy three times in the past two months.

Since April, it has hiked the repo rate by 125 basis points and the cash reserve ratio by 150 basis points.

The bank also cut its growth forecast for the financial year to eight per cent -- the slowest since 2004 -- from a range of 8.0 to 8.5 per cent, saying the global economic outlook was “fraught with uncertainty.” Asia’s third-largest economy grew by nine per cent in the last financial year to March.

“The downside risks to global economic prospects have intensified since April,” the central bank said.

Economists expect Indian growth to slow this year due to higher borrowing costs and tough global financial conditions, with