GDP growth plummeted to a six-year low of 5 per cent for the June quarter and is expected to come lower for the September quarter.
A modest overshoot in recent inflation outruns is outweighed by downside risks to RBI's growth estimates.
With the reduction in their respective benchmark lending rates, home, auto and other loans have become cheaper.
The rate reduction is not applicable to the repo-linked loans.
RBI will continue accommodative stance as long as it is necessary and growth revives, said RBI Gov Shaktikanta Das.
The industry emphasised that it was now critical for banks to facilitate a faster transmission of rate cuts.
The repo rate has been brought down to 5.15 per cent to help reduce borrowing costs for home and auto loans.
RBI Governor Shaktikanta Das has already hinted further monetary policy easing while space for fiscal space is limited.
With current inflation remaining benign, we expect RBI to opt for a 40 bps rate cut, said Yes Bank's Yuvika Oberoi.
RBI has already slashed the repo rate (short-term borrowing rate) four times aggregating to 1.10 percentage points since January.