RBI raised the short-term repo rate as expected, but the size of the move, which brought the benchmark to 9.0 percent, surprised markets.
Most economists polled by Reuters had forecast a smaller step after last month's two increases totalling 75 basis points.
The RBI also raised the amount of funds banks must keep on deposit with it by 25 basis points to 9.0 percent to absorb surplus cash in the banking system. The increase will take effect on Aug. 30.
"Bringing down inflation from the current high levels and stabilising inflation expectations assumes the highest priority in the stance of monetary policy," the central bank said in its quarterly review.
Analysts, most of whom had expected the reserve ratio to stay unchanged, saw the double-punch as a sign the RBI was ready to accept slower growth as a price for lower inflation, which is holding just below 12 percent.
The RBI cut its growth forecast for this fiscal year to around 8.0 percent from 8.0-8.5 percent previously.
It also said it was now aiming to bring inflation down to 7.0 percent by the end of the fiscal year in March 2009, instead of its previous more ambitious goal of around 5.5 percent.