The RBI reduced repo rate by a widely expected 25 basis points on Tuesday, taking comfort from cooling inflation as it made the first cut in nine months to support an economy headed for its slowest growth in a decade.
The Reserve Bank of India cut its key repo rate to 7.75 percent, as forecast by a Reuters poll.
The RBI unexpectedly also reduced the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank by 25 bps to 4 percent, which will infuse an additional 180 billion rupees into the banking system.
The central bank said there was increasing likelihood of inflation remaining rangebound around current levels heading into 2013/14 fiscal year starting April.
"This provides space, albeit limited, for monetary policy to give greater emphasis to growth risks," the central bank said in its quarterly monetary policy review.