NEW DELHI: In a move that brought huge cheer to the markets, Reserve Bank of India (RBI) on Thursday cut the reverse repo rate by 25 basis points to 7.75%. The central bank kept the Cash Reserve Ratio ( CRR ) unchanged at 4.0%.Citing easing inflationary pressures, RBI Governor Raghuram Rajan listed out several domestic factors for the sudden rate cut decision. "These factors have significantly reduced the momentum of inflation, compensating for the widely anticipated ending of favourable base effects," Rajan said. We take a look at them:1) Path of inflation: "Since July 2014, inflationary pressures (measured by changes in the consumer price index) have been easing. The path of inflation, while below the expected trajectory, has been consistent with the assessment of the balance of risks in the Reserve Bank's bi-monthly monetary policy statements," Rajan's statement said.According to Rajan, lower than expected inflation has been enabled by the sharper than expected decline in prices of vegetables and fruits since September, ebbing price pressures in respect of cereals and the large fall in international commodity prices, particularly crude oil."Crude prices, barring geo-political shocks, are expected to remain low over the year. Weak demand conditions have also moderated inflation excluding food and fuel, especially in the reading for December," he added.2) Fiscal deficit target: Rajan has acknowledged the government's assurance of sticking to its fiscal deficit target of 4.1% in the current fiscal year. "Finally, the government has reiterated its commitment to adhering to its fiscal deficit target," he said.Recently the Finance Ministry had said that all efforts were being made to ensure that the government does not default on the fiscal deficit target.3) Inflation expectations: "Households' inflation expectations have adapted, and both near-term and longer-term inflation expectations have eased to single digits for the first time since September 2009. Inflation outcomes have fallen significantly below the 8 per cent targeted by January 2015. On current policy settings, inflation is likely to be below 6 per cent by January 2016," RBI said.These developments have provided headroom for a shift in the monetary policy stance, Rajan explained. It may be recalled that the fifth bi-monthly monetary policy statement of December had stated that "if the current inflation momentum and changes in inflation expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle"."The fifth bi-monthly monetary policy statement also stated that once the monetary policy stance shifts, subsequent policy actions will be consistent with this stance. Key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation as well as steps to overcome supply constraints and assure availability of key inputs such as power, land, minerals and infrastructure. The latter would be needed to ensure that potential output rises above the projected pick-up in growth in coming quarters so as to contain inflation," Rajan said.