India central bank tightens monetary policy to fight inflation

India's central bank tightened monetary policy on Thursday to fight high inflation, raising by half a percentage point the amount of cash commercial banks must keep in reserve.

The Reserve Bank of India announced the hike would be made in two stages starting April 26.

The increase came after official figures released earlier in the day showed annual inflation had dropped slightly but was still running around a three-year high of 7.14 per cent.

'In the light of the current macroeconomic, monetary and anticipated liquidity conditions, and with a view to containing inflation expectations, it is essential to take appropriate action on an urgent basis,' the bank said in a statement on its website.

The move to hike the cash reserve ratio is aimed at sucking out excess liquidity from the banking system in a bid to lower prices.