What Happened
- The 59th meeting of the Monetary Policy Committee (MPC), held from February 4 to 6, 2026, unanimously decided to keep the policy repo rate unchanged at 5.25%.
- RBI Governor Sanjay Malhotra, chairing the MPC, stated that the current policy rate is appropriate given buoyant economic growth and benign inflation.
- The MPC continued with its neutral monetary policy stance, with only one member — Ram Singh — voting for a shift to an accommodative stance.
- The RBI revised its CPI inflation projection for FY26 upward to 2.1%, primarily due to rising prices of precious metals, while projecting real GDP growth of 7.4% for FY26, with Q1 and Q2 of FY27 at 6.9% and 7% respectively.
Static Topic Bridges
Monetary Policy Committee (MPC) — Composition and Framework
The Monetary Policy Committee was constituted under Section 45ZB of the Reserve Bank of India Act, 1934, following the amendment introduced by the Finance Act, 2016. The MPC is a statutory body entrusted with the task of fixing the benchmark policy rate (repo rate) to contain inflation within the specified target level while keeping in mind the objective of growth.
- Composition: 6 members — 3 from RBI (Governor as Chairperson, Deputy Governor in charge of monetary policy, one officer nominated by the Central Board) and 3 external members appointed by the Central Government
- Quorum: 4 members required for a valid meeting
- Voting: Each member has one vote; in the event of a tie, the Governor has a casting vote
- Meetings: Required to meet at least four times a year
- Statutory basis: Section 45ZB of the RBI Act, 1934 (inserted by Finance Act, 2016)
Connection to this news: The February 2026 MPC meeting saw a unanimous decision on the repo rate but a 5:1 split on the stance, illustrating how the committee's individual voting pattern is disclosed in the minutes, ensuring transparency and accountability in monetary policy decisions.
Inflation Targeting Framework in India
India adopted a flexible inflation targeting (FIT) framework in 2016, based on the recommendations of the Urjit Patel Committee (2014). Under this framework, the RBI is mandated to maintain CPI inflation at 4% with a tolerance band of +/- 2 percentage points (i.e., 2% to 6%). The framework was formally operationalized through the Finance Act, 2016, which amended Section 45ZA of the RBI Act, 1934.
- Target: CPI inflation at 4% (with 2-6% tolerance band), set by the Government in consultation with the RBI
- Target period: Reviewed every five years; current target valid through March 31, 2026
- Failure clause: If average inflation exceeds the upper or lower tolerance band for three consecutive quarters, the MPC must submit a report explaining the reasons and remedial actions
- CPI used: CPI-Combined (All India), compiled by MoSPI, base year 2012 (revised to 2024 in the latest update)
Connection to this news: With CPI inflation projected at just 2.1% for FY26 — well within the lower tolerance band and near the floor of the 2-6% target — the MPC had room to hold rates steady rather than cut, reflecting the committee's forward-looking assessment of growth-inflation dynamics.
Repo Rate and Monetary Policy Transmission
The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks against government securities under the Liquidity Adjustment Facility (LAF). It is the primary instrument of monetary policy used by the MPC. Changes in the repo rate are intended to transmit through the banking system to influence lending rates, credit growth, and aggregate demand.
- Current repo rate: 5.25% (unchanged since the February 2026 meeting)
- Standing Deposit Facility (SDF) rate: 25 basis points below the repo rate
- Marginal Standing Facility (MSF) rate: 25 basis points above the repo rate
- Transmission mechanism: Repo rate → banks' cost of funds → MCLR/external benchmark rates → lending rates → aggregate demand → inflation
- External benchmark lending rate (EBLR) system introduced in October 2019 for faster transmission
Connection to this news: By holding the repo rate steady at 5.25%, the MPC signals that it is comfortable with the current growth-inflation balance, while maintaining sufficient policy space for future action if global or domestic conditions change.
Key Facts & Data
- Repo rate: 5.25% (unchanged)
- MPC stance: Neutral (5:1 vote; one member favoured accommodative)
- CPI inflation projection for FY26: 2.1% (revised upward)
- Real GDP growth projection for FY26: 7.4%
- GDP growth projection for Q1 FY27: 6.9%; Q2 FY27: 7.0%
- MPC meeting: 59th meeting, held February 4-6, 2026
- MPC chairperson: Sanjay Malhotra (RBI Governor)
- Statutory basis: Section 45ZB of RBI Act, 1934