Monetary Policy Committee (MPC)

The Reserve Bank of India Monetary Policy Committee kept the policy repo rate unchanged at 5.25% while revising growth and inflation projections upward for FY26.

Monetary Policy Decisions

• Repo Rate Unchanged: The MPC voted unanimously to keep the policy repo rate under the Liquidity Adjustment Facility (LAF) at 5.25%.
• Other Policy Rates: The Standing Deposit Facility (SDF) rate remains at 5.00%, while the Marginal Standing Facility (MSF) rate and the Bank Rate remain at 5.50%.
• Policy Stance: By a 5:1 majority, the MPC retained a “Neutral” stance, signalling flexibility in future actions depending on evolving conditions.
  • While the MPC retained neutrality, Prof. Ram Singh, member MPC, maintained his view that the stance should shift from neutral to accommodative.
• Growth Outlook:
  • GDP Growth Upgrade (FY26): Real GDP growth is projected at 7.4% for FY26, reflecting strong domestic momentum.
  • GDP growth for Q1 and Q2 of FY27 has been revised upward to 6.9% and 7.0%, respectively.
• Inflation Trends and Projections:
  • Headline CPI inflation remained low at 0.7% in November and 1.3% in December 2025
  • Food and Fuel Dynamics: Food inflation was in deflation, while fuel inflation remained moderate.
  • Core Inflation Stability: Excluding gold, Core inflation stayed stable at around 2.6%.
  • Inflation Outlook: CPI inflation for FY26 is projected at 2.1%, with Q4 at 3.2%.
  • FY27 Estimates: CPI inflation projections are 4.0% in Q1:FY27 and 4.2% in Q2:FY27, remaining near target.
  • Precious Metals Impact: Upward revision is mainly due to precious metals prices, contributing about 60–70 basis points.
• Rationale for Monetary Policy Decisions:
  • External Headwinds vs Trade Optimism: The MPC noted intensified external headwinds, but successful trade deals improve the outlook.
  • Inflation Below Tolerance Band: Headline inflation remains below the tolerance band and is expected to stay benign.
  • Growth Resilience: Economic activity continues to remain resilient, driven by domestic momentum.
  • Policy Rate Appropriateness: The MPC assessed that the current policy rate is appropriate for balancing growth and inflation.

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Monetary Policy Committee (MPC)

• Statutory Establishment: The Monetary Policy Committee (MPC) was constituted in 2016 as a statutory body under the RBI Act, 1934.
• Role of MPC: The MPC is responsible for deciding the policy interest rate to maintain inflation within the prescribed target while supporting economic growth.
• Composition of MPC: The MPC has six members, including the RBI Governor as Chairperson, the Deputy Governor as In Charge , one RBI-nominated official, and three external members nominated by the Government of India.
• The external members of the MPC hold office for a fixed term of four years.
• Quorum Requirement: The quorum for an MPC meeting is four members, and it must include the Governor or, in his absence, the Deputy Governor.
• Decision-Making Process: MPC decisions are made through majority voting, and in case of a tie, the RBI Governor exercises a casting vote.
• Nature of Decisions: The decisions taken by the MPC are binding on the RBI, ensuring uniform implementation of monetary policy outcomes.
• Meeting Frequency: The MPC is required to meet at least four times a year, though it may meet more often if needed due to economic conditions.

Monetary Policy Framework Agreement (MFPA)

• Monetary policy in India is conducted under the Monetary Policy Framework Agreement signed between the Government of India and the RBI in 2015, based on the recommendations of the Urjit Patel Committee.
• Inflation Target Setting by Government: The framework mandates that the inflation target is set by the Government of India once every five years, in consultation with the RBI.
• Use of CPI for Inflation Targeting: The Government uses the Consumer Price Index (CPI) as the official measure for inflation targeting in India.
• Flexible Inflation Targeting Regime: India follows a flexible inflation targeting system with a target of 4% CPI inflation, allowing a tolerance band of ±2%

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Monetary Policy Stances

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