India's central bank cut its main interest rate by 25 basis points on Friday, in the third such move this year, but said there was "little space" for further reductions to help the slowing economy.
After meeting in the financial capital Mumbai, the Reserve Bank of India (RBI) said that the benchmark repo rate, at which it lends to commercial banks, would fall to 7.25 percent, as expected by most economists.
The cash reserve ratio -- the percentage of deposits banks must keep with the central bank -- was kept unchanged.
The RBI's decision to cut rates had been forecast by economists and business leaders, who have been calling for lower borrowing costs to help the economy, which grew at an estimated 5.0 percent in the full year to March.
Indian shares slid 0.67 percent to 19,604.17 points, reacting to the news that further rate cuts were unlikely in coming months.
India's headline inflation eased to a three-year-low of 5.96 percent in March, giving the bank room to lower borrowing costs on Friday, analysts say.
India's manufacturing activity also slowed sharply in April, to its lowest pace of growth for 17 months, according to the Purchasing Managers' Index (PMI) from HSBC.