Why in the News
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has kept the policy repo rate unchanged at 5.25%, balancing inflation risks against the need to support economic growth amid global uncertainties.
What is the Monetary Policy Committee (MPC)?
- Statutory body: Constituted under the Reserve Bank of India Act, 1934 (amended in 2016).
- Composition: Six members:
- Three RBI members: Governor (Chairperson), Deputy Governor in charge of Monetary Policy, and one RBI nominee.
- Three external members: Appointed by the Central Government.
- Decision-making: Each member has one vote; in case of a tie, the Governor has a casting vote.
- Mandate: Maintain Consumer Price Index (CPI) inflation at 4%, with a tolerance band of 2% to 6%.
What did the MPC decide?
- Repo rate unchanged: Retained at 5.25%.
- Policy stance: Continues to remain neutral.
- Liquidity corridor:
- Standing Deposit Facility (SDF): 5.0%
- Marginal Standing Facility (MSF): 5.5%
- Bank Rate: 5.5%
- Growth outlook: Real GDP growth projected at 6.7%.
- Inflation outlook: CPI inflation rose to 4.4% in June 2026, crossing the 4% target after remaining below it for 16 months.
Why did the MPC maintain the status quo?
- Global uncertainties: Rising crude oil prices and geopolitical tensions in West Asia pose inflation risks.
- Monsoon concerns: An El Nino driven deficient monsoon could increase food inflation.
- Data dependent approach: The MPC prefers to wait for clearer inflation and growth signals before changing policy rates.
Back2Basics: Reserve Bank of India (RBI)
- Established: 1935 under the Reserve Bank of India Act, 1934.
- Functions:
- Monetary authority of India.
- Banker to the Government.
- Banker to banks.
- Regulator and supervisor of the banking system.
- Manager of foreign exchange reserves.
- Major monetary policy instruments:
- Repo Rate
- Standing Deposit Facility (SDF)
- Marginal Standing Facility (MSF)
- Cash Reserve Ratio (CRR)
- Statutory Liquidity Ratio (SLR)
- Open Market Operations (OMOs)
“[2017] Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)?
1. It decides the RBI’s benchmark interest rates.
2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
3. It functions under the chairmanship of the Union Finance Minister.
Select the correct answer using the code given below:
(a) 1 only
(b) 1 and 2 only
(c) 3 only
(d) 2 and 3 only