UPDATE 1-India cbank to take note of lower inflation -Governor

Last Updated: Tue, May 14, 2013 17:30 hrs

(Recasts, adds quotes)

FRANKFURT, May 14 (Reuters) - India's central bank will take note of falling inflation when discussing potential interest rate cuts, Reserve Bank of India Governor Duvvuri Subbarao said on Tuesday, adding he was very happy about the falling inflation.

Asked about potential interest rate cuts in light of falling inflation, Subbarao said they would be taken into account in future central bankers "will take note of softening inflation."

India's headline wholesale inflation fell below 5 percent in April, dropping within the central bank's comfort zone for the first time in more than three years and fuelling market hopes for more monetary easing to revive flagging economic growth.

Subbarao said earlier he was "very happy" about the fall.

He also said that cutting public-sector budgets in India can be supportive of growth, if done smartly and by increasing efficiency.

"In India, we need austerity for growth, fiscal consolidation can support growth in India," Subbarao said.

He also said that he expected the country's economic growth to pick up speed in the second half of this year, and added that India has to control its current account deficit and bring it down to 2.5 percent from the current level of 5 percent. (Reporting by Sakari Suoninen; editing by Ron Askew)

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