NEW DELHI, Oct 20: India must brace itself for slower growth due to worldwide financial turmoil, Prime Minister Manmohan Singh warned on Monday, as the central bank cut a key lending rate to shore up the economy.

India was experiencing the “ripple effects” of the worst financial crisis in nearly 80 years and “must be prepared for a temporary slowdown,” Singh told parliament in his first public statement on the impact of the credit tremors.

But “once the global situation stabilises, we will return to the growth trajectory of nine per cent”, he promised in a nationally televised speech.

His statement came just hours after the central bank cut the repo -- the rate at which it lends funds to commercial banks -- by a surprise full percentage point to eight per cent to bolster the economy.

The cut cheered investors, who drove up shares by 2.48 per cent or 247.74 points -- back above the psychologically key 10,000 level to 10,223.09.

But India’s leading Sensex 30-share index is still down by half since the start of 2008 while the rupee is nudging five-year lows as risk-averse foreign investors dump Indian assets.

The rate cut marked a turn in a hiking cycle that began in 2004 to fight inflation, which now appears to be easing from levels of over 11 per cent

Singh said India faced no risk to its banking sector as in the developed world where some countries like Britain have been forced to stage massive bank bailouts to restore confidence in their financial systems.

India’s tightly regulated banks were financially sound, he said.

“There should be no fear of a failure of any bank,” Singh said after the nation’s largest private bank ICICI, viewed as one of the nation’s most solid, was buffeted earlier this month by depositor panic about its solvency.

The government aimed to minimise the slowdown by increasing spending on infrastructure and other projects, Singh said, calling it “an important part of the solution.” He conceded the impact of the crisis was still “difficult to estimate…since the depth and duration of the global slowdown remain uncertain.” But the most “pessimistic estimates” projected growth for the financial year to March 2009 at “no less than seven per cent” after the economy grew by nine per cent or more for the three previous years, he noted.

Seven per cent is still a strong number but not enough to pull tens of millions of Indians out of poverty, analysts say.

Authorities stood ready to pump in more liquidity to get Indian financial institutions lending again and grease economic growth after the central bank injected $29.7 billion into the financial system this month, Singh said.—AFP