Last updated: March 19. 2013 4:39AM - 458 Views
Associated Press

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(AP) India's central bank lowered its key interest rate by a quarter percentage point to 7.5 percent Tuesday, the second rate cut in three months aimed at reviving stalled growth in Asia's third-largest economy.

The Reserve Bank of India cited the weakest economic growth in 15 quarters as outweighing inflation fears. High prices, especially for food, still remain a concern and could limit the bank's scope for further rate cuts.

"Growth has decelerated significantly, even as inflation remains at a level (that) is not conducive for sustained economic growth," the central bank said in a statement.

The government earlier this month estimated the economy grew 4.5 percent in the October-December quarter, down sharply from growth rates near 10 percent earlier in the decade.

While wholesale inflation has been hovering near three-year lows in recent months, the retail consumer price index hit a high of 10.9 percent in February, mostly due to soaring prices for cereals and meat.

The two figures mean the bank is balancing conflicting goals of keeping price increases under control while lowering interest rates to encourage consumer spending and business investment.

Analysts say that even with the recent cuts, interest rates may still be too high to prompt businesses to borrow. The central bank also on Tuesday left the cash reserve ratio for banks untouched Tuesday, after lowering it by a quarter point to 4 percent in January. A lower cash reserve ration frees up more money for commercial banks to lend.

India's economy is expanding at its slowest pace in a decade, with gross domestic product predicted to grow as little 5 percent in the fiscal year ending in March. That's down from 9 percent in early 2011, and it's paired with rising budget and current account deficits that have weakened India's currency.

India's finance minister last month unveiled a new budget aimed at trimming the budget deficit and attracting foreign investment.

India's statistics agency is forecasting annual economic growth of only 5 percent for the 2012-13 fiscal year that ends March 31, the weakest in a decade.

The finance ministry estimates the country needs at least 8 percent growth to create enough new jobs for the 13 million Indians entering the workforce each year.

Associated Press
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