Monetary Policy and RBI Policy Rates
The Monetary Policy Committee, the inflation target, the liquidity corridor and the current policy rates after the October 2026 policy.
Key points
- The Monetary Policy Committee (MPC) has six members and decides the policy repo rate.
- Inflation target: CPI inflation of 4% with a tolerance band of 2% to 6%, retained for April 2026 – March 2031.
- On 7 October 2026 the MPC raised the repo rate by 25 bps to 5.50% and changed its stance to "calibrated tightening".
- Corridor: SDF (floor) 5.25% – Repo 5.50% – MSF (ceiling) 5.75%.
- CRR 3.00% and SLR 18.00%.
Legal framework
The flexible inflation targeting framework was introduced through amendments to the RBI Act, 1934 in 2016. Under Section 45ZA the Central Government, in consultation with RBI, sets the inflation target every five years.
Monetary Policy Committee
- Six members: the RBI Governor (chairperson), the Deputy Governor in charge of monetary policy, one RBI officer nominated by the Central Board, and three external members appointed by the Central Government for four years.
- Quorum is four members; decisions are by majority, and the Governor has a casting vote in case of a tie.
- The MPC must meet at least four times a year; in practice it meets six times.
- If inflation stays outside the 2–6% band for three consecutive quarters, RBI must report the reasons and remedial actions to the Government.
Policy rates after the October 2026 policy
| Rate | Level | What it is |
|---|---|---|
| Policy Repo Rate | 5.50% | Rate at which RBI lends to banks against government securities; the main policy signal |
| Standing Deposit Facility (SDF) | 5.25% | Rate RBI pays banks on overnight surplus funds, without collateral; floor of the corridor |
| Marginal Standing Facility (MSF) | 5.75% | Emergency overnight borrowing by banks, including by dipping into SLR; ceiling of the corridor |
| Bank Rate | 5.75% | Aligned with MSF; used for penal rates |
| Fixed Reverse Repo | 3.35% | Retained at RBI's discretion; no longer the floor |
| CRR | 3.00% of NDTL | Cash banks must keep with RBI; earns no interest |
| SLR | 18.00% of NDTL | Liquid assets (cash, gold, approved securities) banks must maintain |
The live figures are also shown on the RozgarFactory home page and are updated daily from the RBI website.
Exam tip: The Liquidity Adjustment Facility corridor is 50 bps wide: SDF = Repo ? 25 bps and MSF = Repo + 25 bps.
How a rate change reaches borrowers
- Most new floating-rate retail and MSME loans are linked to an External Benchmark such as the repo rate, so a repo change passes through at the next reset (at least once every three months).
- Older loans linked to MCLR or Base Rate adjust more slowly.
- Deposit rates usually respond with a lag.