The Reserve Bank of India (RBI) has cut its benchmark interest rate by 0.25 per cent as expected as growth in the country slows.
However, after completing the rate change the central bank said there is little room for more monetary easing policies.
The RBI also lowered the repo rate to 7.25 per cent, its lowest since May 2011, and kept the cash reserve ratio for banks unchanged at four per cent, which was also in line with expectations.
According to the central bank, the risk of inflationary pressure persists despite a recent decline in the wholesale price index (WPI).
It expects the economy to grow at 5.7 per cent in the fiscal year that commenced in April 2013, and projected headline WPI inflation at around 5.5 per cent during the year.
In a statement the RBI said: "With upside risks to inflation still significant, monetary policy cannot afford to lower its guard against the possibility of resurgence of inflation pressures."
By Asim Shah