What Happened
- The Monetary Policy Committee (MPC) of the Reserve Bank of India, meeting from February 4-6, 2026, unanimously decided to keep the policy repo rate unchanged at 5.25%.
- The neutral monetary policy stance was retained, with five members supporting it; one external member (Professor Ram Singh) voted to shift to an "accommodative" stance.
- The February 2026 decision marked the continuation of a pause following cumulative rate cuts of 125 basis points during FY25-26.
- CPI inflation for FY26 was projected at 2.1% for the full year, with Q4 FY26 at 3.2%; projections for Q1 FY27 and Q2 FY27 were 4.0% and 4.2% respectively.
- The Standing Deposit Facility (SDF) rate remained at 5.00% and the Marginal Standing Facility (MSF) rate at 5.50%.
Static Topic Bridges
Monetary Policy Framework and Inflation Targeting
India formally adopted a flexible inflation targeting (FIT) framework in 2016, when the Finance Act 2016 amended the RBI Act, 1934 to insert Section 45ZA-ZL. Under this framework, the RBI is mandated to maintain CPI (combined) inflation at 4% with a tolerance band of ±2% (i.e., 2-6%). The government sets the inflation target every five years in consultation with the RBI. The Urjit Patel Committee (2014) recommended this shift from multiple indicators to a single nominal anchor.
- Statutory basis: RBI Act, 1934, Sections 45ZA-ZL (inserted via Finance Act 2016)
- Inflation target: 4% CPI (combined) ± 2% tolerance band
- Framework recommended by: Urjit Patel Committee (2014)
- If inflation stays outside 2-6% for three consecutive quarters, the RBI must submit a report to the government explaining the failure and remedial action
- CPI (combined) = Weighted average of CPI (Urban) and CPI (Rural), compiled by MoSPI
Connection to this news: With CPI projected at 2.1% for FY26 (well within the 2-6% target band), the MPC had room to cut; however, the neutral stance and hold reflect caution about the Q1 FY27 projection of 4.0% and external uncertainties.
MPC Composition, Decision Process, and Tools
The MPC was constituted under Section 45ZB of the RBI Act and met for the first time in October 2016. It consists of six members: three RBI officials (Governor as Chair, 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-year terms. Decisions are by majority vote; the Governor has a casting vote in case of a tie. The MPC meets at least four times a year.
- MPC composition: 3 RBI internal + 3 external (government-appointed, four-year terms)
- External members (appointed October 2024): Nagesh Kumar (ISID), Saugata Bhattacharya (economist), Prof. Ram Singh (Delhi School of Economics)
- Meetings: At least 4 per year (currently 6 bimonthly meetings)
- Voting: Simple majority; Governor has casting vote in tie
- Key tools: Repo rate (main policy rate), SDF (floor of corridor), MSF (ceiling of corridor), CRR, SLR, OMOs
Connection to this news: The February 2026 MPC vote was unanimous on the rate decision (5.25%) but showed a 5:1 split on stance, reflecting divergent views on when to signal the next easing cycle — relevant for understanding how the committee manages forward guidance.
Interest Rate Corridor and Liquidity Management
The RBI operates a liquidity adjustment facility (LAF) that uses a corridor of interest rates to manage short-term liquidity. The repo rate is the rate at which the RBI lends overnight to banks (against eligible collateral). The SDF (introduced in 2022, replacing the reverse repo) is the floor — the rate at which banks park excess liquidity with the RBI without collateral. The MSF is the ceiling — the rate at which banks borrow from the RBI outside normal LAF against eligible securities. The corridor (SDF to MSF) was 50 bps wide around the repo rate.
- Repo rate: 5.25% (policy rate — rate of RBI lending to banks overnight)
- SDF rate: 5.00% (floor of corridor — 25 bps below repo)
- MSF rate: 5.50% (ceiling of corridor — 25 bps above repo)
- SDF introduced: April 2022 (replacing reverse repo as the floor of the corridor)
- CRR (Cash Reserve Ratio): Proportion of net demand and time liabilities (NDTL) banks must hold as cash with RBI (non-interest-bearing)
- SLR (Statutory Liquidity Ratio): Proportion of NDTL banks must maintain in specified liquid assets (govt securities, gold, cash)
- Cumulative rate cuts in FY25-26: 125 basis points (before the pause)
Connection to this news: The maintenance of the corridor at current levels signals the RBI's intent to keep short-term money markets stable at existing rates while retaining flexibility to adjust as inflation and growth data evolve in Q1 FY27.
Key Facts & Data
- Repo rate (February 2026): 5.25% (unchanged)
- SDF rate: 5.00%; MSF rate: 5.50%
- Policy stance: Neutral (5:1 vote; Ram Singh voted for accommodative)
- CPI inflation projection: FY26 full year 2.1%; Q4 FY26: 3.2%; Q1 FY27: 4.0%; Q2 FY27: 4.2%
- Cumulative cuts in FY25-26: 125 basis points before the pause
- Inflation targeting framework: Finance Act 2016, RBI Act Sections 45ZA-ZL
- Inflation target: 4% CPI ± 2% (band: 2-6%)
- Urjit Patel Committee: 2014 — recommended FIT framework
- MPC constituted: October 2016 (first meeting); 6 bimonthly meetings per year
- External members (Oct 2024): Nagesh Kumar, Saugata Bhattacharya, Prof. Ram Singh