The Central Bank's Monetary Policy Committee (MPC) made a unanimous decision to maintain the status quo after a three-day meeting that began on December 2.
The repo rate was left unchanged at 4%, while the reverse repo rate or the critical borrowing rate stayed at 3.35%.
Repo is the rate at which the RBI lends funds to commercial banks when needed, and RBI uses it as a tool to control inflation. The reverse repo rate is the rate at which the RBI borrows from banks.
RBI governor Shaktikanta Das said that the economy was rebounding faster than expected from a COVID-19-pandemic induced slump earlier in the year but warned signs of recovery were far from being broad-based.
It was broadly expected that the RBI's MPC would hold rates as recent data showed that retail inflation has been at an elevated level during October.
The MPC also decided to continue with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year – to revive growth on a durable basis and mitigate the impact of COVID-19 on the economy while ensuring that inflation remains within the target in the future.
RBI has already reduced the repo rate by 115 basis points since late March when the Covid crisis hit India.
Inflation is seen as a significant cause for worry for the central bank as it hit a nearly six-and-a-half-year high of 7.61% in October, and RBI expects it to come down to sub 5% in the second half of FY2020. RBI Governor Shaktikanta Das, in his address, pointed out that the Apex bank expects inflation to decelerate.
MPC has been given the mandate to maintain annual inflation at 4% until March 31 next year with an upper tolerance of 6% and a lower tolerance of 2%.
"These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2% while supporting growth," said an RBI statement.