NEW DELHI, August 12, 2008 (AFP) - India's industrial output grew by just 5.4 percent in June, down sharply from the rate a year earlier, as hefty interest rates hit manufacturers, according to official data released Tuesday.

The central bank has been steadily hiking interest rates in Asia's third-largest economy in a bid to curb inflation riding at 13-year highs, crimping spending by consumers who take out loans to finance their purchases.

Industrial production accelerated by just 5.4 percent in June compared with 8.9 percent in the same month a year earlier, the figures showed.

But the figure -- broadly in line with analysts' forecasts -- picked up from May when industrial output grew by a revised 4.1 percent.

For the April-June financial quarter, industrial production growth slowed to 5.2 percent down from 7.1 percent in the same period a year earlier.

Industrial output has been declining as interest rates have risen.

Analysts expect at least one more round of interest rate hikes before inflation starts to soften. India's benchmark short-term lending rate now stands at nine percent -- a seven-year peak.

Both the central bank and the Congress-led government, which fears a voter backlash over prices in elections due by May 2009 at the latest, are attaching greater priority to taming inflation than promoting growth.

Inflation, now at 12.01 percent -- nearly triple the level of a year ago -- is of acute concern to authorities because of the impact it has on India's poverty stricken masses.

For the financial year to March 31, 2008, industrial output climbed by 8.1 percent, down from a scorching 11.6 percent the previous year.

Experts forecast economic growth will slow this year as high borrowing costs and tough global financial conditions bite, with some predicting expansion as low as seven percent, down from nine percent last year.