NEW DELHI - India's economy grew last quarter at the slowest pace in more than two years after the nation's central bank raised interest rates by a record to tame the fastest inflation among so-called BRIC nations.

GDP rose 6.9 percent in the three months through September, the Central Statistical Office said in a statement in New Delhi on Wednesday. That's the weakest expansion since the second quarter of 2009, and matches the median of 6.9 percent in a Bloomberg News survey of 24 economists.

Prime Minister Manmohan Singh's efforts to stimulate growth are being hamstrung by corruption scandals that have stalled legislation for a year, and a political outcry against foreign investment in retail. The Reserve Bank of India has also been constrained in supporting the economy as it struggles with inflation that's almost twice the rate in China and higher than in Brazil and Russia.

"High interest rates, uncertainty about reforms, allegations of corruption and recessionary global conditions are casting a deep shadow over India's growth story," said Rohini Malkani, an economist at Citigroup Inc. "What is worrying is that growth prospects do not seem sunny for the next year either."

Citigroup this week cut its estimate for the Indian economy's expansion to 7.1 percent for the year ending March 31 from 7.6 percent earlier.

Rupee drops

The rupee has slumped 14.3 percent against the dollar this year, making it Asia's worst performer as risks to global growth posed by Europe's debt crisis prompted investors to sell stocks. The Sensitive Index has lost a fifth of its value in 2011.

India's stock index, the third-worst performer in Asia this year, may be hurt the most among emerging-market equities from global risk aversion because of a slowing economy and a weak rupee, Tata Asset Management Ltd said on Monday.

Manufacturing grew 2.7 percent in the three months through September from a year earlier, slower than the 7.2 percent gain in the previous quarter, Wednesday's report showed. Mining fell 2.9 percent, farm output rose 3.2 percent and construction grew 4.3 percent.

"Price pressures have reduced the RBI's scope to ease rates anytime soon and prop up growth," Shubhada Rao, chief economist at Yes Bank Ltd, said before the report.

India's benchmark wholesale-price inflation was 9.73 percent in October. Consumer prices rose 7 percent in Brazil, 5.5 percent in China and 7.2 percent in Russia in the same month.

The Reserve Bank signaled last month it's nearing the end of monetary tightening, provided inflation slows. The central bank has boosted the repurchase rate by 375 basis points in 13 moves since the start of 2010, the fastest round of increases since the monetary authority was established in 1935, according to Bloomberg data.

"Economic sentiment has now turned sharply negative," Indranil Pan, chief economist at Kotak Mahindra Bank Ltd, said before the report. "The current situation of domestic and global headwinds to growth provides the government with a good opportunity to carry out reforms."

"Reforms like easing FDI in retail are vital for the economy," Dipankar Mitra, an economist at Motilal Oswal Securities Ltd, said before the report. "Or else India's growth momentum will face huge roadblocks."

Bloomberg News