India's central bank cut its benchmark policy tax rate to 5.5% from 6% (the lowest level since August 2022).

It also marks the third drop since February, estimated at less than 5.75% in Reuters polls.

RBI Governor Sanjay Malhotra said in a live broadcast that the move was taken because inflation has been greatly reduced and “below our aspirations” in a challenging global environment and increased uncertainty around the world.

The decision was higher than expected GDP growth in its fiscal fourth year, while the economy grew by 7.4% year-on-year, while economists estimate Reuters' estimate of 6.7%.

However, the central bank estimated its full-year GDP estimate at 6.5%, marking a sharp slowdown, compared with 9.2% of the previous fiscal year, which ended in March.

"The Indian economy shows pictures of strength, stability and opportunity," Malhotra said.

The Reserve Bank of India (RBI) underscored growth concerns at previous meetings amid U.S. tariff threats.

In addition, this decision also emerged, as India's inflation is on a downward trend to a large extent, which also provides room for the Reserve Bank of India to lower the tax rate.

April's latest title inflation rate was 3.16%, the lowest since July 2019.

The Reserve Bank of India changed its inflation outlook to 3.7% in the fiscal year, down from 4% of its earlier figures, while Malholta said inflation could lower its target.

Most forecasts indicate a persistent modest price for major commodities, including crude oil, he said.

However, central banks still need to pay attention to weather-related uncertainties and evolving tariff concerns on the impact of global commodity prices.

In view of the lower policy interest rates, the Reserve Bank of India said there is limited room for monetary policy to support growth and would transform its monetary policy stance into "adaptive" "neutral".

"From here on, the (Monetary Policy Committee) will carefully evaluate the incoming data and the evolving prospects to list future monetary policy courses to achieve the right growth inflation," the governor of the Reserve Bank of India said.

Shilan Shah, deputy chief emerging market economist, said the cuts to 50 base points meant the Reserve Bank of India ended the easing cycle “with a sensation.”

He added that the central bank took advantage of the "small drop" of inflation to reduce it by 50 basis points.