The central bank lifted its reverse repo rate, used to drain liquidity from the money market, by a quarter of a percentage point to 5.25 percent.
Analysts said hawkish comments on inflation pointed to more rate increases ahead, with six out of 10 in a Reuters poll expecting another quarter-point rise in January.
"Underlying growth momentum remains strong and we expect demand-driven inflationary pressures will rise," said Rajeev Malik, an economist at J.P. Morgan in Singapore. "We continue to expect another reverse repo hike in January."
The Reserve Bank of India (RBI) said it expected Asia's third-largest economy to grow 7.0-7.5 percent in the fiscal year to the end of next March, having forecast in April that growth would be "around 7 percent".
It based its latest forecast on a pick-up in farm output, which generates a fifth of gross domestic product, and momentum in industry and services.
Tuesday's widely expected rate rise takes the reverse repo to its highest level in 2-1/2 years. It last raised the rate - by a quarter of a percentage point - in April.
The central bank surprised analysts by raising the repo rate, used to add liquidity to the money market, by a quarter of a percentage point to 6.25 percent, while leaving the bank rate for pricing long-term loans steady at 6.0 percent.
But the central bank suggested more inflationary pressure was in the pipeline, warning markets that higher crude oil prices had been only partially passed through into domestic prices and second-round effects were not yet "noticeably significant".
India imports about 70 percent of its oil, and international prices have risen nearly 40 percent this year.
India's Finance Minister Palaniappan Chidambaram called the rate move "a measured step towards moderate monetary tightening".
"With adequate liquidity available there will not be any adverse impact on cost of credit for investment and for productive activities," he told reporters in New Delhi.
The central bank has projected wholesale price inflation of 5.0-5.5 percent at the end of this fiscal year, but RBI governor Yaga Venugopal Reddy said on Tuesday it had an informal inflation ceiling below that level.
"The policy response that has been indicated... is exactly meant to contain inflation within 5.0-5.5 percent and to have a medium-term situation where ... I would like to treat an informal mandatory ceiling for inflation of less than 5," he told a news conference.
Wholesale inflation was 4.62 percent in early October, up from a near-three-year low of about 3 percent at the end of August.
India has raised state-controlled petrol and diesel prices twice this year, both times by about 7 percent.
The RBI said rapid credit growth and the potential for bad debts needed careful monitoring. Commodity price inflation was low, but asset prices, especially house prices, had increased substantially, it said.