What Happened
- The Reserve Bank of India's Monetary Policy Committee (MPC), meeting from February 4–6, 2026, unanimously voted to keep the policy repo rate unchanged at 5.25%, maintaining its neutral stance.
- RBI Governor Sanjay Malhotra announced the decision on February 6, 2026.
- The Standing Deposit Facility (SDF) rate remains at 5.00% and the Marginal Standing Facility (MSF) rate at 5.50%.
- The RBI announced a draft framework proposing compensation of up to ₹25,000 (or 85% of the fraud amount, whichever is lower) to customers who are victims of small-value digital banking fraud.
- GDP growth for FY26 was projected at 7.4%; CPI inflation for FY26 was revised marginally upward to 2.1% from 2.0%.
- The RBI has cumulatively reduced the repo rate by 125 basis points since February 2025.
Static Topic Bridges
Monetary Policy Committee (MPC) — Composition, Mandate, and Process
The MPC was constituted under Section 45ZB of the Reserve Bank of India Act, 1934 (inserted by the Finance Act, 2016), to determine the policy interest rate required to achieve India's inflation target. The MPC represents India's shift to flexible inflation targeting (FIT) as its formal monetary policy framework.
- Six members: three RBI officials (Governor as ex-officio Chair, Deputy Governor, and one RBI officer) and three external members appointed by the Central Government for a 4-year term (not eligible for reappointment).
- Decisions by majority; Governor has the casting vote in case of a tie.
- Meetings held at least four times a year (at least once per quarter); minutes published with voting records.
- Flexible Inflation Targeting adopted in 2016: CPI target of 4% (+/- 2% tolerance band), i.e., 2%-6% range.
- The Government of India, in consultation with RBI, sets the inflation target every 5 years; current target of 4% was retained in 2021.
- If inflation breaches the tolerance band for three consecutive quarters, MPC must report to the government explaining reasons and remedial action.
Connection to this news: The MPC's unanimous decision to hold rates reflects the committee's assessment that current inflation is within target and growth momentum is sustained, while keeping a cautious eye on global uncertainty.
Policy Rate Corridor — Repo, SDF, MSF
India's monetary policy operates through a Liquidity Adjustment Facility (LAF) corridor, with the repo rate as the benchmark. The corridor is defined by the Standing Deposit Facility (SDF) rate as the floor and the Marginal Standing Facility (MSF) rate as the ceiling.
- Repo rate (policy rate): Rate at which RBI lends overnight to commercial banks against eligible securities; currently 5.25%.
- Standing Deposit Facility (SDF): Rate at which RBI absorbs excess liquidity from banks without collateral; currently 5.00% (25 bps below repo).
- Marginal Standing Facility (MSF): Rate at which banks borrow overnight from RBI against approved securities (above SLR); currently 5.50% (25 bps above repo).
- SDF was introduced in April 2022, replacing the reverse repo as the effective floor of the LAF corridor.
- Monetary transmission: Repo rate changes pass through to MCLR-linked lending rates, affecting credit and consumption.
Connection to this news: The unchanged corridor (5.00%–5.25%–5.50%) signals RBI's intent to maintain adequate systemic liquidity while avoiding inflationary impulses, consistent with the neutral stance adopted since October 2024.
Digital Banking Fraud — RBI's Compensation Framework
The RBI's proposed compensation framework for digital fraud victims marks a significant consumer protection step. It acknowledges that customer negligence (such as sharing OTPs) cannot always be the sole basis for denying compensation, given the sophistication of social engineering fraud.
- Proposed compensation: Up to ₹25,000 or 85% of fraud amount, whichever is lower.
- Applicable to fraudulent digital transactions up to ₹50,000 in value.
- An estimated 65% of reported digital fraud cases fall within this value range.
- Cost distribution: RBI to bear 65%; customer's bank and beneficiary bank each to contribute 10%; customer absorbs 15% loss.
- Eligibility: Fraud must be bona fide; customer must report to the bank AND on the National Cyber Crime Reporting Portal (cybercrime.gov.in) or helpline (1930) within 5 calendar days.
- Compensation can be claimed only once per customer (lifetime limit).
- Even OTP-sharing victims may be eligible — a shift from previous norms that placed heavy liability on customers who shared credentials.
- Effective date: July 1, 2026 (as per draft directions).
Connection to this news: The RBI's fraud compensation announcement was part of the February 2026 policy package, reflecting RBI's consumer protection mandate alongside its monetary policy role, particularly important as digital payment volumes continue to rise rapidly.
Key Facts & Data
- Repo rate (February 2026): 5.25% (unchanged)
- SDF rate: 5.00%; MSF rate: 5.50%
- Monetary policy stance: Neutral
- MPC vote: Unanimous (6-0) to hold rates
- Cumulative rate cuts since February 2025: 125 basis points
- GDP growth projection (FY26): 7.4%
- CPI inflation projection (FY26): 2.1% (revised from 2.0%)
- CPI inflation target: 4% (+/- 2%), i.e., 2%–6% range
- Digital fraud compensation: up to ₹25,000 or 85% of amount (lower of the two)
- Applicable to transactions up to ₹50,000; 65% of fraud cases in this range
- Effective date for fraud compensation: July 1, 2026
- National Cyber Crime helpline: 1930; portal: cybercrime.gov.in
- Next MPC meeting: April 6–8, 2026