Economic growth severly stunted in last quarter

Friday, February 27, 2009 ·



India's economy grew at its slowest annual pace in almost six years in the December quarter, throwing into doubt growth estimates for the full fiscal year and raising expectations the central bank would soon cut rates.

The slower-than-expected growth in Asia's third-largest economy saw a weak sharemarket extend losses to more than 2 percent, and analysts said the central bank could cut rates as early as Saturday.

The economy grew 5.3 percent in the December quarter from a year earlier, below forecasts of 6.2 percent and the previous quarter's 7.6 percent as the global economic crisis cut demand and exports. It was the slowest growth since the March quarter of 2003.

"We have been calling for significant rate cuts for a long time. We are looking for a 100 basis points cut as soon as probably tomorrow in the repo rate and reverse repo rate," said Sailesh Jha, senior regional economist at Barclays Capital.

"After seeing this number, I think the market is now pricing in a 100 basis points cut." The central bank cut its main lending rate, the repo rate, by 350 basis points to 5.50 percent in four moves between October 20 and January 2, but held rates steady at a review in late January, saying banks were yet to pass on its rate cuts.

The rupee, which hit a record low of 50.78 in morning trade, was supported by buying from state-run banks, which traders said was likely to have been on behalf of the central bank

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