Its monetary policy committee decided to retain an accommodative policy stance at least for the current financial year and into the next to revive growth on a durable basis, while ensuring that inflation remains within target, Governor Shaktikanta Das said in an online briefing.

Das said the economy was rebounding faster than expected from a coronavirus-induced slump earlier in the year but warned signs of recovery were far from being broad based. COVID-19 infections are also continuing to climb, with the tally now 9.57 million people.

Das said MPC members voted unanimously to hold rates and retain the stance. The key lending rate of the RBI or the repo rate was left unchanged at 4% while the reverse repo rate or the key borrowing rate stayed at 3.35%.

"The MPC is of the view that inflation is likely to remain elevated, barring transient relief in the winter months from prices of perishables," Das said.

"This constrains monetary policy at the current juncture from using the space available to act in support of growth."

Indian stocks extended earlier gains to hit record highs after the decision, while the Indian rupee strengthened slightly to 73.76 against the dollar. The benchmark 10-year bond yield fell 3 basis points to 5.90%.

Das announced measures to help improve access to funding for stressed sectors and said the RBI will take further steps when necessary to ensure ample rupee liquidity to sustain visible growth impulses, without impacting inflation.

"Inflation targeting is uppermost in our agenda," Das said in a post policy news conference.

The MPC sees inflation in the current quarter at 6.8% before cooling slightly to 5.8% in the Jan-March quarter. The October projections for H2 FY21 were for inflation between 5.4%-4.5%.

"We believe that improving signs of growth normalisation and elevated inflation in the near term suggest no additional scope for rate cuts," said Garima Kapoor, economist with Elara Capital.

The central bank has slashed the repo rate by 115 basis points (bps) since late March to cushion the shock from the coronavirus crisis and sweeping lockdowns to check its spread.

However, inflation has remained consistently above the upper end of the RBI's mandated 2%-6% target range every month barring March this year, with core inflation also remaining sticky.

"If supply side management is timely and effective, you will see the trajectory of inflation completely changing," deputy governor Michael Patra said, adding that the inflation projections provided are based on how things stand today.

Gross domestic product in the July-September quarter contracted 7.5% on-year, after a decline of 23.9% in the previous three months.

Das said India's prospects have brightened with progress on COVID-19 vaccines, and MPC now projects real GDP for the current financial year to shrink just 7.5% from an earlier expectation of a 9.5% contraction.

Analysts polled by Reuters last month forecast India would emerge from recession early in 2021 but it is not expected to return to pre-pandemic levels any time soon.

"An accommodative liquidity stance will ensure access to liquidity will not be a challenge and the ongoing recovery continues to gather steam," said Ashish Shanker, head Of investment at Motilal Oswal Private Wealth Management.

(Additional reporting by Chris Thomas and Sachin Sai in BANGALORE; Nupur Anand and Abhirup Roy in MUMBAI and Nidhi Verma in NEW DELHI; Editing by Kim Coghill)

By Swati Bhat and Euan Rocha