The Monetary Policy Committee and the repo rate
The committee that sets the repo rate, the interest rate at which the RBI lends to banks, to keep inflation near 4 percent.
What the paper can ask
- The RBI Act was amended in May 2016 to create the MPC (Section 45ZB); the first MPC was constituted on 29 September 2016.
- Inflation target 4 percent CPI with a 2 to 6 percent band, retained for April 2026 to March 2031. (as of 23 Oct 2026)
- The SDF rate is 25 basis points below the repo rate (the floor, since April 2022) and the MSF rate 25 basis points above it (the ceiling).
- Quorum is four; each member has one vote and the chair a casting vote; minutes are published on the 14th day after the decision.
- External members: Nagesh Kumar, Saugata Bhattacharya and Ram Singh. (as of 23 Oct 2026)
Latest
On 7 October 2026 the MPC raised the repo rate by 25 basis points to 5.50 percent, the first hike since February 2023, and shifted its stance to 'calibrated tightening'; SDF 5.25 percent, MSF and Bank Rate 5.75 percent; next meeting 2 to 4 December 2026.
Why exams ask
After every policy, setters ask the new repo rate, which rate is 25 points above or below it, the MPC's size and the inflation target.
The full story
The repo rate is the rate at which the RBI lends short-term money to banks against government securities; raising it makes loans dearer and cools inflation. Since 2016 it is set by the Monetary Policy Committee (MPC), created by an amendment to the RBI Act, with RBI members and external members appointed by the government; the chair has a casting vote.
In the news
Test yourself
1.The repo rate is the rate at which:
Correct. Repo (repurchase) rate is the policy rate at which the RBI lends to banks against collateral of government securities. Reverse repo is the opposite flow.
Not quite. Repo (repurchase) rate is the policy rate at which the RBI lends to banks against collateral of government securities. Reverse repo is the opposite flow. It goes into your error book.
2.The Standing Deposit Facility (SDF), introduced by the RBI in April 2022, allows banks to:
Correct. SDF absorbs overnight liquidity from banks without the RBI giving collateral, unlike reverse repo. Its rate is set 25 basis points below the repo rate and is the floor of the corridor.
Not quite. SDF absorbs overnight liquidity from banks without the RBI giving collateral, unlike reverse repo. Its rate is set 25 basis points below the repo rate and is the floor of the corridor. It goes into your error book.
3.The Marginal Standing Facility (MSF) rate is the rate at which banks:
Correct. MSF lets banks borrow overnight from the RBI by dipping into their SLR holdings, at 25 basis points above the repo rate. It is the ceiling of the corridor.
Not quite. MSF lets banks borrow overnight from the RBI by dipping into their SLR holdings, at 25 basis points above the repo rate. It is the ceiling of the corridor. It goes into your error book.