The Reserve Bank of India has kept key interest rates unchanged at 6.75%, in line with market expectations saying that it awaits further data on the development of inflation and the impact from the 7th Central Pay Commission which has recommended wage hikes.

The central bank said it continues to be accommodative and awaits structural reforms in the forthcoming Union Budget which will boost growth while controlling spending will create more space for monetary policy to support growth, while also ensuring that inflation remains on the projected path of 5% by the end of 2016-17.

Unveiling the sixth bi-monthly monetary policy review, the RBI also said it will keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liability.

Over the past year since last January, the RBI has cut the repo rate by 125 basis points bringing it to the current level of 6.75%.

What is Repo Rate?

The repo rate is the rate at which banks borrow short term funds requirement from the RBI. This forms the basis for commercial banks to set their interest rates. Any cut in the repo rate should ideally translate into a corresponding cut in interest rates on home loans and other loans.

However banks take time in transmitting RBI’s cut, due to various factors, including lack of adequate capital for banks and mounting bad debts.