The Reserve Bank of India (RBI) projected the Consumer Price Index (CPI) at 2.8 percent for the January-March quarter and 3.2-3.4 percent for the first quarter of the next financial year, that is the April-September period.
"Continuing deflation in food items, a sharp fall in fuel inflation and some edging down of inflation excluding food and fuel contributed to the decline in headline inflation," the statement said.
The central bank said the "inflation in the prices of farm inputs and industrial raw materials remained elevated, despite some softening".
It also took note of the risks in the volatile financial markets, the reversal in vegetable prices, the volatile oil prices and the geopolitical risks that can increase the inflation.
However, the RBI largely expects the headline inflation to remain soft for the time being.
Experts, before the outcome of the meeting, said the latest inflation numbers formed the basis of the argument for a rate cut. The retail inflation had plunged to an 18-month low in December 2018 at 2.19 percent.
The RBI cut the key policy rates by 25 basis points in its sixth bi-monthly policy announced on Thursday. With this, the repo rate stands at 6.25 percent, while the reverse repo rate stands at 6 percent.
For GDP, the top bank projected the FY20 GDP growth at 7.4 percent, with risks evenly balanced.
The policy statement projected the GDP growth between 7.2 and 7.4 percent in the first half of the next financial year and 7.5 percent for the third quarter of the next financial year.
The Indian government revised the GDP growth rates by 110 basis points from 7.1 percent to 8.2 percent for 2016-17 and by 50 basis points from 6.7 percent to 7.2 percent for fiscal 2017-18.
According to the country's GDP trend, it is steadily improving after a dip of 5.7 percent in July 2017 quarter.
"As regards domestic macroeconomic development, the Monetary Policy Committee (MPC) noted that the CSO has placed India’s real gross domestic product (GDP) growth at 7.2 percent in 2018-2019 with gross fixed capital formation accelerating but consumption expenditure moderating and net exports improving. More recent high-frequency indicators point to investment demand losing some pace in Q3 of 2018-2019, while credit flows to industry remain muted," Shaktikanta Das, RBI governor, said at the press conference.
The output gap, the statement said, opened up modestly as actual output has inched lower than potential and added the Investment activity is recovering and is largely supported by public spending on infrastructure.
The top bank said there is a need to strengthen the private investment activity and buttress private consumption.
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