Mumbai: The Reserve Bank on Thursday kept key policy rate unchanged and said future policy action would be determined by the movement in inflation.

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"On the basis of the current macroeconomic assessment, it has been decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.5 per cent," RBI said in its mid-quarterly review.

It has also kept the cash reserve ratio (CRR), the portion of deposits which banks are required to keep with the central bank, unchanged at 4.75 per cent.

"Notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions," RBI said in its guidance for the future.

Inflation rose to 6.95 per cent in February which is much above the Reserve Bank's comfort level of 5-6 per cent.

Last week, the RBI had reduced CRR by 0.75 percentage point to 4.75 per cent to infuse Rs 48,000 crore into the system to mitigate pressure on account of payment of advance taxes.