April 23 (Bloomberg) -- The Reserve Bank of India should be careful not to keep interest rates low for too long, Deputy Governor Rakesh Mohan said.

“There’s been a huge, very fast reduction in interest rates,” Mohan said in a speech at the London Business School today. “We will have to be careful in terms of watching when the economy turns up in the months to come that we will absorb monetary accommodation at the right time.”

The comments are the second suggestion this week that India’s steepest string of interest-rate cuts on record may be coming to an end. RBI Governor Duvvuri Subbarao said that Asia’s third-largest economy is faring better than most in the global recession as record harvests boost rural incomes.

India’s central bank on April 21 cut interest rates for the sixth time in as many months to a record low. The reverse repurchase rate, or its overnight borrowing rate, dropped to 3.25 percent from 3.5 percent and the repurchase rate to 4.75 percent from 5 percent.

The Reserve Bank expects economic growth, which slowed to a six-year low of 5.3 percent in the December quarter, to pick up to as much as 6 percent over the next year. India is less vulnerable to the global economic slump than most of its neighbors as exports make up about a quarter of its $1.2 trillion economy, compared with about half of GDP for developing Asia as a whole.

Indian Election

Mohan said that the election being held now in India won’t endanger the country’s economic prospects, regardless of the outcome.

“Over the last 20 years, we’ve been through governments of every color,” he said during questions after the speech at the LBS’s India Business Forum. “And this has been the period of the highest growth the country has had since independence. Whatever the consequence of the elections, one would expect the continuation of the kind of growth we’ve had.”

India’s elections started on April 16 and will continue until May 13, with counting of ballots due to be held on May 16. Most opinion polls say Prime Minister Manmohan Singh’s Congress party may emerge with most seats.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

Last Updated: April 23, 2009 12:55 EDT