Why in News?
The Reserve Bank of India (RBI), in its first monetary policy meeting of FY 2026–27, decided to keep the repo rate unchanged at 5.25%. The decision was taken unanimously by the Monetary Policy Committee (MPC) under Governor Sanjay Malhotra. The RBI also retained its ‘neutral’ policy stance, indicating flexibility in future actions
Key Highlights of Monetary Policy (FY27)
- Repo Rate: 5.25%
- Standing Deposit Facility (SDF): 5.00%
- Marginal Standing Facility (MSF): 5.50%
- Bank Rate: 5.50%
These rates are crucial tools used by RBI to regulate liquidity and inflation in the economy.
What is Monetary Policy Committee (MPC)?
- Established under the RBI Act, 1934 (amended in 2016)
- Composition: 6 Members
- 3 from RBI
- 3 nominated by Government of India
- Chairperson: RBI Governor
- Meetings: At least 4 times a year
Objective:
- Maintain price stability
- Achieve inflation target of 4% (±2%)
- Support economic growth
What is Neutral Policy Stance?
- A neutral stance means RBI is not biased toward increasing or decreasing interest rates.
Key Features:
- Equal focus on inflation control and growth
- Decisions depend on future economic data
- Provides policy flexibility
Important Policy Rates
Repo Rate
- Repo (Repurchase Option) Rate is the rate at which RBI lends money to commercial banks.
Impact:
- Increase in Repo Rate:
- Loans become expensive
- Reduces money supply
- Controls inflation
- Decrease in Repo Rate:
- Loans become cheaper
- Boosts investment & consumption
- Promotes economic growth
SDF (Standing Deposit Facility):
- Rate at which banks deposit surplus funds with RBI (without collateral)
MSF (Marginal Standing Facility):
- Emergency borrowing window for banks from RBI
Bank Rate:
- Long-term lending rate of RBI
To know more about Monetary Policy committee from exam point of view, Click here
