Now the big question is whether the central bank will step on the brakes at its monetary policy meeting Tuesday and raise interest rates in a bid to curb inflation, which is running at a four-month peak of 5.26 percent.

"Domestic factors such as rising inflation despite lower oil prices, robust bank credit and money supply growth and a strong underlying economy favour further tightening," said Deepak Lalwani, a director at London stockbroker Astaire and Partners Ltd.

"However, the government's need to keep the economy strong and the US Fed's benign policy of keeping rates on hold for the third consecutive month favours a wait-and-see attitude," he said.

"It's a tough call," said Lalwani, adding that his "gut feeling" was that the bank would go for a 25-basis point hike, if not next Tuesday, then at its next policy meeting in January.

The bank has hiked its leading short-term rate by 150 basis points since October 2004 to six percent, the highest in four years, in a bid to keep a lid on prices in India, which has the second-fastest expanding big economy after China.

"The bank has been raising rates and it has had no impact on growth," said Crisil credit rating agency's economist D.K. Joshi.

India posted 8.9 percent growth in first quarter gross domestic product after the economy expanded by 8.4 percent in the financial year to March 2006.

The stock market is nudging record peaks and second quarter profits are up by an average of over 30 percent.

Bank credit to industry is expanding by over 30 percent and property prices have risen sharply, sparking fears of a bubble.

"Inflation is projected to cross six percent in the next three months," said ICICI Securities economist A. Prasana. "To address the issue, the Reserve Bank should hike rates."

The ruling Congress government would like monetary policy to spur growth in Asia's fourth-largest economy.

It wants interest rates held as low as possible to help it attain its goal of at least 10 percent expansion, which economists say is needed to make a significant dent in poverty in the country of 1.1 billion people.

Nearly a quarter of India's population live below the poverty line.

"There will be an apparent difference between what I think and what the RBI (Reserve Bank of India) thinks," Finance Minister P. Chidambaram said earlier this month.

But if the Congress government lets inflation get too far out of hand, it will alienate its crucial electoral support base, analysts say.

On Friday, official figures showed the wholesale price index, the most closely watched price barometer, had risen to 5.26 percent, up from 4.77 per cent a year earlier.

The increase was mainly driven by rises in food prices, including maize, vegetables, eggs, soyabeans and edible oils, as well as manufactured goods.

The rise in the price of food staples is of key concern to the Congress party, which owes its surprise 2004 general election victory to support from India's poor masses.

The inflation jump followed figures released earlier this month showing a 9.7 percent rise in August's industrial output, which economists said raised chances that the bank would boost rates.

"The bank is no doubt going to raise rates at the meeting," said Joshi. "The economy has been moving at great speed and inflationary pressures are clearly evident."

Even if the bank hikes its main monetary policy tool, the reverse repo rate, on Tuesday it may not be the end of the tightening cycle, economists say.

"The interest rate hikes have not been impacting growth and as long as there are inflationary pressures, the RBI will have to continue (tightening)," Joshi said.