India's central bank raised interest rates for the first time in more than three years as the Middle East conflict kept energy prices high, hurting the rupee and fueling inflation fears.

The Reserve Bank of India's monetary policy committee voted unanimously to raise its benchmark repo rate by 25 basis points to 5.50%, ending a pause spanning four consecutive meetings.

The MPC voted to change its stance to "calibrated tightening" from "neutral," by a majority of 4-2.

"Given the current conditions, rate cuts are off the table in the near term," said RBI Gov. Sanjay Malhotra. The duration and extent of the rate hike cycle will depend on the growth-inflation developments and outlook, especially underlying inflation, the extent of broadening of price pressures and second-round effects of the supply shock, he said.

Wednesday's decision was widely expected. Nine of 10 economists surveyed by The Wall Street Journal had projected a 25-basis-point increase.

The rupee weakened against the U.S. dollar after the rate decision. The dollar was recently 0.25% higher at 96.63 rupees, LSEG data showed.

The RBI last raised rates in 2023.

Disruptions to oil shipments through the Strait of Hormuz have pushed up energy costs, putting pressure on India's economy after a period of strong growth. Higher crude prices threaten to swell its import bill, while a weaker rupee makes dollar-priced imports more expensive.

The rupee has fallen more than 7% against the dollar this year, pressured by higher oil prices and capital outflows. Headline inflation rose to 4.8% in August.

"Looking ahead, global economic uncertainty will continue to have some bearing on domestic economic activity," though the economy remains resilient, Malhotra said.

The RBI raised its real GDP growth projection for the fiscal year ending March to 7.1% from 6.7%. It also nudged up its annual inflation forecast to 5.2% from 5.0%.

Rising commodity prices are likely to put upward pressure on inflation, as strong growth allows the quick pass-through of input costs to retail prices, said Garima Kapoor, deputy head of research and economist at Elara Capital.

"The rising interest-rate backdrop globally has also reduced RBI's degrees of freedom," Kapoor said.

The inflation numbers are due to supply shocks, but second-order effects are difficult to identify and contain, such as fuel companies absorbing part of the crude price spike, as some fuel inflation has yet to reach consumers, said Nirav Karkera, head of research and fund manager at Groww.

"This hike is about keeping that pressure from spreading across the broader CPI basket," Karkera said.

Capital Economics expects the RBI to deliver two more 25-basis-point rate increases in December and February.

"The hawkish tone of today's decision supports our view that further tightening is likely," said Abhijit Surya, senior Asia-Pacific economist at Capital Economics.