This is the fourth time the Reserve Bank of India has slashed interest rates this year, bringing them down from 7.25 per cent to 6.75 per cent.
The cut goes further than the quarter-point most economists were forecasting - the bank cited concerns over China’s weakening economy and the impact of the continuing commodities rout.
In a statement, governor Raghuram Rajan said:
The weakening of global activity since our last review suggests that commodity prices will remain contained for a while.
The reverse repo rate was also lowered by more than expected, down from 6.25 per cent to 5.75 per cent, but the cash reserve ratio remained at 4 per cent.
This is the fourth repo rate cut India has made this year alone, bringing it down to its lowest level since early 2011.
The last time the RBI cut interest rates was in June.