RBI Monetary Policy Committee (2024–26): Repo Rate, Stance & Inflation Control

RBI Monetary Policy Committee (2024–26): Repo Rate, Stance & Inflation Control

1. Why in News?

Between 2024–2026, RBI maintained a cautious monetary stance amid:

  • Global uncertainty

  • Persistent inflation risks

  • Rupee volatility

  • External sector pressures

MPC decisions gained importance due to global tightening cycles and domestic growth concerns.

2. What is the MPC?

The Monetary Policy Committee (MPC):

  • Established under RBI Act, 1934 (amended 2016)

  • 6 members:

    • 3 from RBI

    • 3 appointed by Government

Governor has casting vote.

3. Primary Objective

As per mandate:

Maintain inflation at 4% ± 2% (i.e., 2%–6%)

This is flexible inflation targeting.

4. Repo Rate (Key Concept)

Repo rate =
Rate at which RBI lends short-term funds to commercial banks.

If repo increases →
Borrowing cost increases → Liquidity tightens → Inflation cools.

If repo decreases →
Growth boost → Cheaper credit.

5. 2024–26 Phase Highlights

  • RBI maintained relatively tight stance

  • Focused on inflation risks

  • Carefully balanced growth slowdown vs price stability

  • Used forward guidance cautiously

Important word used repeatedly:
“Withdrawal of accommodation” (know this phrase)

6. Other Monetary Tools (Prelims Favourite)

  • Reverse Repo

  • Standing Deposit Facility (SDF)

  • Cash Reserve Ratio (CRR)

  • Open Market Operations (OMO)

  • MSF (Marginal Standing Facility)

UPSC may mix these in statements.

7. Static Linkage

  • Inflation targeting framework

  • Difference between:

    • CRR vs SLR

    • Repo vs Reverse Repo

    • Quantitative vs Qualitative tools

These are classic prelim traps.

8. Prelims Angle

Possible question types:

  • MPC composition

  • Inflation band

  • Voting structure

  • Which tool reduces liquidity?

  • Which body sets inflation target?

Remember:
Inflation target is set by Government in consultation with RBI.

9. Mains Angle

  • Is inflation targeting hurting growth?

  • Should RBI prioritize currency stability?

  • Independence of central bank

10. RBI Grade B Angle

Very high importance.

Expect descriptive questions on:

  • Transmission mechanism

  • Neutral rate concept

  • Monetary policy stance analysis

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