The repo rate is the level at which the central bank lends to commercial banks.

The bank has been under pressure to boost growth after inflation hit a record low of 3.6% in August due to falling commodity prices, BBC reported.  The RBI has already cut the policy rate by a total of 75 basis points this year, following rate reductions in January, February and June, on the back of low inflation.

"In India, a tentative economic recovery is underway, but is still far from robust," RBI governor Raghuram Rajan said in a statement.

"Investment is likely to respond more strongly (and boost domestic demand) if there is more certainty about the extent of monetary stimulus in the pipeline."

Economic growth in India, Asia's third largest economy, slowed to an annual rate of 7% between April and June, down from 7.5% in the previous quarter.  Consumer inflation is also well below the central bank's target of 6% for January next year.

Atsi Sheth of Moody's Investors Service said the extent of the rate cut suggested the central bank thought underlying growth was still subdued.

"It also suggests that inflation is not the key risk at this time, in the RBI's view," he told Reuters.

Indian shares reversed losses after the central bank's decision, with the benchmark BSE index up 0.06%. The index had been more that 1% lower earlier in the session.