The bank's Monetary Policy Committee said in a statement that downside risks to the global economy, especially after Britain voted to leave the European Union, added to the downside risks to domestic economic performance.
"The MPC weighed the risks to the growth and inflation outlook and considered that the downside risks to the domestic growth outlook outweighed the risks to the inflation outlook," it said.
"A cut in the Key Repo Rate is warranted at this juncture to support the economy."
The bank cut its repo rate by 40 basis points to 4.00 %.
Central bank governor Rameswurlall Basant Roi told a news conference the bank had revised down its growth forecast for this year to 3.6 % from 3.8 %.
Growth was expected to pick up to 3.8 % in 2017, while headline inflation was seen at 1.5 % this year and 3.0 % next year, the central bank said in a statement.
--reuters--