Decision to keep the policy repo rate unchanged at 5.25%

Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), in its third bi-monthly monetary policy meeting, unanimously decided to keep the policy repo rate unchanged at 5.25% while retaining a neutral policy stance.

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¨     After assessing evolving domestic and global macroeconomic conditions, the MPC unanimously decided to maintain the repo rate at 5.25% under the Liquidity Adjustment Facility (LAF).

¨     Consequently, the Standing Deposit Facility (SDF) rate remains at 5.0%, while the Marginal Standing Facility (MSF) rate and the Bank Rate continue at 5.50%.

¨     The RBI revised its FY 2026–27 real GDP growth projection upward to 6.7% (from 6.6%), while lowering the CPI inflation forecast to 5.0% (from 5.1%), reflecting confidence in domestic growth but caution over inflationary risks.

Factors Influencing the Decision

¨     Resilient Growth: Strong domestic demand, supported by robust private consumption, investment, construction activity, bank credit, and improving exports, kept the growth outlook positive.

¨     Moderate Inflation: CPI inflation rose to 4.4% in June 2026 due to food and fuel prices, but core inflation remained contained, indicating limited demand-driven pressures.

¨     Rising Uncertainties: Risks from El Niño, an uneven monsoon, elevated energy prices, geopolitical tensions, supply-chain disruptions, and global trade policy continue to cloud the outlook.

¨     Wait-and-Watch Approach: As inflationary pressures remain largely supply-driven and are expected to moderate after peaking in Q3 FY 2026–27, the MPC chose to await greater clarity before changing policy rates.

Monetary Policy Committee (MPC)

¨     The Monetary Policy Committee (MPC) was established in September 2016 under Section 45 ZB (1) of the Reserve Bank of India Act, 1934.

¨     The Urijit Patel Committee recommended the establishment of the MPC.

¨     The MPC’s primary responsibility is to determine the policy repo rate to achieve the inflation target.

As per Section 42B (2) of the RBI Act, the MPC comprises six members

¨     RBI Governor – Chairperson (ex officio).

¨     RBI Deputy Governor in charge of Monetary Policy – Member (ex officio).

¨     One RBI officer nominated by the Central Board – Member (ex officio).

¨     Three members appointed by the Central Government.

¨     Members appointed by the Central Government hold office for four years or until further orders, whichever is earlier.

¨     Under Section 45ZA of the RBI Act, the inflation target is 4%, with a tolerance band of 2%–6%.

¨     Inflation is considered to have missed the target if it remains above 6% or below 2% for three consecutive quarters.