India made a surprise cut in interest rates today in the wake of a dramatic slowdown in economic growth.

The Reserve Bank of India (RBI) cut the repurchase rate, or the overnight lending rate to lenders, by 0.25 percentage points, to 4.75 per cent, after saying that the economy was likely to expand by 6 per cent this fiscal year, the slowest rate since 2003.

The cut in the cost of borrowing, the sixth in six months, followed a slew of poor economic data in a country where growth had hovered at about 9 per cent for several years.

India’s industrial production dropped 1.2 per cent in February from a year earlier, to record its biggest fall in more than 14 years.

Exports plummeted by a record amount last month, to extend the longest negative run in a decade.

The Reserve Bank of India also cut the reverse repurchase rate to 3.25 per cent from 3.5 per cent.

It said the action was necessary to free up credit for companies and consumers.

Most analysts had not expected a change.

“Banks have been slow in reducing their lending rates,” Duvvuri Subbarao, the Governor of the RBI, said in a statement.

“Further action on policy rates is now being taken to reinforce this process.”

He added: “However, any upturn in the growth momentum is unlikely in view of the projected contraction in global demand during 2009, particularly in trade.”

Sonal Varma, a Nomura economist, said: “The RBI has delivered a token rate cut essentially signalling to banks to lower their lending rates further.”

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