India's central bank made a surprise move on Thursday to cut its interest rate to 7.75%, thanks to lower-than-expected inflation.
The benchmark interest rate, or the level at which The Reserve Bank of India (RBI) lends to commercial banks, had been kept at 8% since last January.
The move came ahead of the bank's regular meeting next month and analysts said it paved the way for further cuts.
The bank said in a statement the rate would be cut immediately.
The RBI cited a "sharper-than-expected decline" in the price of fruits and vegetables since September last year as one reason for the policy shift.
It also said "ebbing price pressures in respect of cereals and the large fall in international commodity prices, particularly crude oil" had played a part in the move.
The RBI has been under pressure from government and businesses to reduce its interest rate to give the struggling economy a boost.
Lower interest rates lead to increased lending, which in turn helps economic expansion.