The central banks of India and Australia moved Tuesday to curb inflation by raising key interest rates.

The Reserve Bank of India's quarter-point hike in its short-term lending rate to 6.25 per cent was the sixth increase since March and another sign of the difference in the pace of recovery between emerging Asian economies and the developed world.

Reserve Bank of India governor Duwuri Subbarao said the central bank raised rates for the sixth time since March to fight inflation. (Rajanish Kakade/Associated Press)

The bank said that, barring unforeseen shocks, there would be no more rate increases for at least three months.

At 11.6 per cent, India has the highest consumer price inflation of the major economies.

Australia's move was more of a surprise. The Australian economy has boomed amid strong Asian demand for iron ore and other minerals, but figures last week showed lower-than-expected inflation of 2.4 per cent in the September quarter.

The Australian dollar shot up more than one U.S. cent to briefly trade above $1 US after the decision to raise the key interest rate by a quarter-point to 4.75 per cent, the first hike since May.

The currency's move higher reflects that investors expect higher interest rates to attract more foreign money into the country.

Foreign money floods emerging Asia

Moves by developed economies to bring down interest rates and stimulate their economies with low interest rates has sent a flood of foreign money into emerging Asia as investors seek havens of high growth.

The U.S. Federal Reserve is expected Wednesday to join Japan in buying more government bonds and other assets to tamp down interest rates and competitively weaken the dollar.

If the Fed goes ahead with what's widely expected to begin with a $500-billion US bond-buying program, that will accelerate a flow of money that has already pushed emerging stock markets, deal-making and currencies to dizzying highs.

That, in turn, has hurt exports and created fears of frothy equities, real estate and gold markets.

In raising rates, India has broken ranks with Thailand, South Korea, Indonesia and the Philippines, which have put rates on hold, worried that further hikes would attract even more foreign capital.

Unlike most emerging Asian economies, India is a net importer and needs to finance its widening current-account deficit, making it more tolerant of large foreign capital flows than its neighbours.

With files from The Associated Press