Consequently, the reverse repo rate will also continue to earn 3.35 per cent for banks for their deposits kept with Reserve Bank of India (RBI).
“The MPC voted unanimously to keep repo rates unchanged at 4 per cent and continue with its accommodative stance to support growth,” the RBI governor said.
Repo rate is the rate at which the RBI lends to banks, while reverse repo rate is the rate at which it borrows from banks.
The MPC has been given the mandate to maintain annual inflation at 4 per cent until March 31, 2021, with an upper tolerance of 6 per cent and a lower tolerance of 2 per cent.
RBI mainly factors in the retail inflation while arriving at its bi-monthly monetary policy.
The fast-changing macroeconomic environment and the deteriorating growth outlook necessitated off-cycle meetings of the MPC — first in March and then again in May 2020. The MPC had cumulatively cut the repo rate by 115 basis points (bps) over these two meetings, which resulted in total policy rate reduction of 250 bps since February 2019, with an aim to boost economic growth.
The central bank has been taking steps proactively to limit the damage to the economy caused by the pandemic and subsequent lockdowns.