The Reserve Bank of India raised the cost for banks to borrow by a quarter percentage point to 7.25 percent and kept its reverse repurchase rate, the rate paid for deposits from commercial banks, at a four-year high of 6.0 percent.

The central bank did refrain from lifting its long-term rate, or bank rate, from 6.0 percent and kept the cash reserve ratio, the percentage of funds banks have to keep as cash, at 5.0 percent.

The central bank said global oil prices, down more than 10 dollars from record levels above 70 dollars earlier this year, and a booming economy posed a threat to price stability.

The economy, which grew 8.4 percent in the fiscal year ended March and 8.9 percent in the quarter ended June, showed "signs of overheating", it said.

"While global inflation conditions have not worsened, concerns relating to price pressures and uncertainties surrounding international crude prices persist," Reserve Bank Governor Y.V. Reddy said in a statement.

The central bank meanwhile raised its growth forecast to 8.0 percent for the year to March 2007, from an earlier forecast of 7.5-8.0 percent, and said inflation would be contained at 5.0-5.5 percent.

Reddy said industrial output, led by manufacturing, has performed better than expectations.

Inflation, as measured by wholesale prices, rose to a four-month peak of 5.26 percent last week at the same time in a sign of a booming economy, the benchmark Mumbai stock exchange Sensex hit a record high close Monday of 13,024.26.

The Sensex opened firm Tuesday but fell 0.48 percent or 62.36 points in choppy trade to 12,961.90.