India's economy grew at its slowest pace in five quarters during the March quarter, as rising interest rates crimped consumpton and investment, although the central bank is expected to continue tightening rates in its battle against inflation.

Annual gross domestic product grew 7.8pc in the March quarter, lower than the 8.3pc expansion in the previous quarter and below the median forecast for growth of 8.2pc in a Reuters poll.

For the full fiscal year 2010/11, the economy grew 8.5pc compared with the government's forecast of 8.6pc.

"Not a disaster but adds to the idea that EM (emerging market) growth is cooling as tighter policy kicks in," said Jonathan Cavenagh, senior FX strategist in institutional FX sales for Asia at Westpac Institutional Bank In Singapore.

"With inflation still elevated and more work to be done by the RBI, tighter policy still seems likely, which will not be welcome by the equity market," he said.

Most economists expect the central bank to raise its main policy interest rate by 25 basis points at its review on June 16, after it raised its key rates by a bigger-than-expected 50 basis points early this month. (read more)