Central bank of India increased a benchmark interest rate for the second time in six months – a move that surprised market analysts.

The bank’s governors said lifting oil prices as well as higher commodity were the key factors for the bank to lift rates.

The Reserve Bank of India increased benchmark interest rate by a quarter point to 5% from the previous 4.75% set on October 26.

The bank said it expects India’s economy to grow 7% in the fiscal year to March 31, from 6.9 % in the same period of 2004.

``We are serious about containing inflationary expectations, so there must be certain amount of comfort as to how interest rates can move. The interest rate outlook depends on inflationary expectations,’’ Central Bank Governor Y.V. Reddy said.