By Rajesh Kumar Singh

NEW DELHI (Reuters) - India's headline inflation unexpectedly hit a seven-month high in September, mainly driven by higher food prices, increasing the odds for yet another interest rate hike by the central bank at its policy review later this month.

The wholesale price index (WPI), India's main inflation measure, rose an annual 6.46 percent last month, the fastest pace since February 2013.

The reading compared with a 6 percent rise estimated by analysts in a Reuters poll. Wholesale prices had risen 6.1 percent in August.

The rise was mainly driven by higher prices of onions and vegetables. Onion prices were up an annual 322.94 percent in September, while prices of vegetables rose 89.37 percent year-on-year.

Worries over high inflation led new Reserve Bank of India (RBI) chief Raghuram Rajan to surprise markets in his policy review last month with an interest rate hike.

Economists are split over whether Rajan will hike rates again at the next review on October 29. However, Monday's WPI data has increased the odds for more tightening at that meeting.

"There was anyway a case for a rate hike based on the previous inflation prints, including the CPI (consumer price index). This number has reinforced the case for a 25 basis points repo rate hike by the RBI," said A. Prasanna, economist at ICICI Securities, Primary Dealership Ltd, in Mumbai.

Consumer inflation due later on Monday is expected to have quickened to 9.60 percent last month from 9.52 percent in August, according to a Reuters poll of economists.

Indian bonds slumped and the rupee weakened after the WPI data raised expectations for a rate hike.

STAGNATING?

The inflation data provides further evidence of high inflation and weak growth in Asia's third-largest economy, which some analysts define as akin to stagflation. For the past three quarters economic growth has been stuck below 5 percent and prices are rising at a fast clip.

Even though India is stumbling through its worst economic crisis since 1991, Rajan has clearly signalled he would focus on price stability, which he sees as a necessary condition for lifting economic growth from a decade low.

Inflation is expected to come down in coming months as a slowing economy is likely to keep demand-driven price pressures in check and as this summer's strong monsoon rains may eventually cool food prices.

Yet, price risks persist. Adjustments in domestic prices of subsidised fuel and other imported items following a sharp depreciation of the rupee are still incomplete.

Although the rupee gained 5 percent last month, it is still down around 10 percent this year against the dollar, meaning higher import costs for items such as oil, fertilizer, pulses and edible oil in rupee terms.

The rupee hit record lows in late August, pressured by the country's gaping current account deficit and a general exodus of global investors from emerging market assets.

Adding to the central bank's worries, core inflation quickened to 2.1 percent in September.

"Rising input costs have again pushed up core inflation on a month-on-month basis," said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai. "While CAD (current account deficit) worries have faded, inflation continues to remain the major macro risk".

(Reporting by Rajesh Kumar Singh; Editing by Frank Jack Daniel & Kim Coghill)