Monetary policy is the RBI's management of the price and quantity of money to keep inflation low and stable without choking growth. In India it runs on a statutory framework: the government sets an inflation target, a six-member committee sets the policy repo rate, and the RBI uses its tools to make that rate stick in the money market and pass through to loans and deposits. This part explains each link in that chain, using the RBI's latest decisions as examples. If you need the background first, read the history of the RBI and its functions. The mechanics of the individual policy rates are covered in the next part, Repo Rate, Reverse Repo Rate and Standing Deposit Facility.
In the news
- 21 Oct 2026: Minutes of the October MPC meeting published. The RBI released the minutes of the 5–7 October meeting, with each member's vote and statement. Why it matters for the exam: Section 45ZL requires minutes on the 14th day after the meeting, and this is a live example.
- 12 Oct 2026: CPI inflation rises to 5.54% in September. Provisional data from the National Statistics Office put headline inflation at 5.54% (August, final: 4.83%), with food inflation at 7.74%. Why it matters for the exam: inflation is still inside the 2–6% band, but rising fast, which is why the MPC moved before the band was breached.
- 7 Oct 2026: MPC raises repo rate by 25 bp to 5.50%. At its 63rd meeting, the MPC voted unanimously for the hike, its first since February 2023, and changed the stance from neutral to "calibrated tightening". Two members, Dr Nagesh Kumar and Prof. Ram Singh, voted for the hike but preferred to keep the stance neutral. The RBI raised its 2026-27 CPI projection to 5.2%. Why it matters for the exam: note the rates (repo 5.50%, SDF 5.25%, MSF and Bank Rate 5.75%) and the fact that a stance vote can differ from a rate vote.
- 16 Sep 2026: US Federal Reserve raises rates. The Fed lifted its federal funds target range by 25 bp to 3.75–4.00%. The ECB and the Bank of Japan also raised rates in June and September 2026. Why it matters for the exam: tightening abroad affects capital flows and the rupee, which feed into the RBI's own decision through the exchange rate channel.
- 5 Aug 2026: Repo held at 5.25%, stance neutral. The MPC kept rates unchanged for a third straight meeting in 2026-27 and kept its 2026-27 CPI projection at about 5% (5.0%, from 5.1% in June), while flagging risks from volatile oil prices, renewed hostilities in West Asia and a deficient, uneven monsoon. Why it matters for the exam: a classic example of supply shocks (fuel and food) driving the inflation outlook.
- 5 Jun 2026: Hold, plus measures to attract capital inflows. The RBI kept the repo rate at 5.25% and announced steps such as hedging-cost support for fresh 3–5-year FCNR(B) deposits and easier foreign investment in government bonds, with net FPI outflows of US$13.7 billion by 2 June. Why it matters for the exam: monetary policy works alongside exchange rate and capital-flow management.
- 25 Mar 2026: Inflation target renewed to 2031. The government retained the 4% CPI target with a 2–6% band for 1 April 2026 to 31 March 2031. Why it matters for the exam: the current target period is 2026–31; "valid till 2026" is now wrong.
- 12 Feb 2026: New CPI series with base year 2024. MoSPI moved the CPI from base 2012=100 to 2024=100, with weights from the Household Consumption Expenditure Survey 2023-24 and a larger basket (358 items, up from 299). January 2026 inflation on the new series was 2.75% (provisional). Why it matters for the exam: the inflation target is defined in terms of CPI, so a change in the index changes what the RBI is targeting.
What monetary policy is trying to do
The legal objective
Since the 2016 amendment, the Preamble of the RBI Act, 1934 says that "the primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth". Price stability comes first, measured by an explicit numerical target. The phrase "keeping in mind" growth is what makes India's framework flexible inflation targeting: the RBI can take longer to bring inflation back to target if a faster return would hurt output badly. A credible target also anchors inflation expectations, which makes the target itself easier to hit.
Section 45ZA lets the Central Government, in consultation with the RBI, set the target in terms of the Consumer Price Index (CPI) once every five years. The target today is 4% CPI inflation, with an upper tolerance of 6% and a lower tolerance of 2%, for 1 April 2026 to 31 March 2031. Part 2 sets out all three notifications.
How the framework evolved
India's monetary policy has changed its anchor several times. The main steps:
| Period | Framework | What it targeted |
|---|---|---|
| 1985 to 1998 | Monetary targeting (Chakravarty Committee) | Reserve money as operating target, broad money (M3) as intermediate target |
| April 1998 to 2015 | Multiple indicators approach | A wide set of indicators (interest rates, credit, output, inflation, trade, the fiscal position) with no single anchor |
| 2015 onwards | Flexible inflation targeting | CPI inflation, 4% ± 2% |
From money supply to many indicators
Under monetary targeting, adopted in 1985 on the recommendations of the Sukhamoy Chakravarty Committee, the RBI tried to control inflation by limiting the growth of money. Financial liberalisation in the 1990s made the link between money and income less predictable. So in April 1998 the RBI moved to the multiple indicators approach, in which broad money became only one information variable and interest rates gained weight. The RBI's own assessment is that it served fairly well until about 2008-09, but critics called it a "check list" approach without a clear nominal anchor.
The Urjit Patel Committee, 2014
The Expert Committee to Revise and Strengthen the Monetary Policy Framework, chaired by then Deputy Governor Urjit Patel, submitted its report on 21 January 2014. It recommended:
- CPI (combined) inflation as the nominal anchor;
- a target of 4% with a band of ±2%;
- a glide path to get there from double-digit inflation: 8% within 12 months and 6% within 24 months;
- a Monetary Policy Committee to take rate decisions.
The Agreement, the Act and the MPC
- Monetary Policy Framework Agreement (20 February 2015): signed by the government and the RBI, making price stability the primary objective. This is when inflation targeting began in practice.
- Finance Act, 2016: amended the RBI Act (in May 2016) to give the framework a statutory basis through Chapter IIIF (Sections 45Z to 45ZO). The amended Act came into force on 27 June 2016.
- Target notified (5 August 2016): 4% ± 2% for 5 August 2016 to 31 March 2021.
- MPC constituted (29 September 2016): it met for the first time on 3–4 October 2016.
- First review (31 March 2021): target retained for 2021–26.
- Second review (25 March 2026): target retained for 2026–31. The RBI's discussion paper of 21 August 2025 asked whether to target headline or core inflation, whether 4% was still right, and whether the band should change. All features were kept.
The Monetary Policy Committee
Who sits on it
Section 45ZB creates a six-member MPC that decides the policy repo rate needed to achieve the target. Its decision is binding on the RBI. As of October 2026 the members are:
| Member | Category | Current holder |
|---|---|---|
| Governor (chairperson, ex officio) | RBI | Sanjay Malhotra |
| Deputy Governor in charge of monetary policy | RBI | Dr Poonam Gupta |
| Officer nominated by the Central Board | RBI | Indranil Bhattacharyya |
| External member | Government-appointed | Dr Nagesh Kumar |
| External member | Government-appointed | Saugata Bhattacharya |
| External member | Government-appointed | Prof. Ram Singh |
The three external members were appointed by notification of 1 October 2024. They are chosen on the recommendation of a search-cum-selection committee chaired by the Cabinet Secretary, serve four years and cannot be reappointed.
How it decides
- Meetings: at least four a year (Section 45ZI). In practice it meets six times a year on a schedule announced in advance. For 2026-27 the dates are 6–8 April, 3–5 June, 3–5 August, 5–7 October and 2–4 December 2026, and 3–5 February 2027. Members normally get at least 15 days' notice.
- Quorum: four members, one of whom must be the Governor or, in the Governor's absence, the Deputy Governor on the MPC.
- Voting: one member, one vote. In a tie, the Governor has a casting vote. Every member must write a statement giving reasons for their vote.
- Resolution: published at the end of each meeting, with the decision and the vote.
- Minutes: published on the 14th day after the meeting (Section 45ZL), including each member's vote and statement. The October 2026 minutes appeared on 21 October.
- Monetary Policy Report (MPR): published once every six months (Section 45ZM), in April and October. It explains the sources of inflation and gives forecasts for six to eighteen months ahead.
Accountability when the target is missed
The government has notified that the RBI fails if average CPI inflation is above 6% or below 2% for any three consecutive quarters. Under Section 45ZN, the RBI must then report to the government:
- the reasons for the failure;
- the remedial action it proposes;
- an estimate of when the target will be met.
This has happened once. Inflation peaked at 7.8% in April 2022 and stayed above 6% from the January–March 2022 quarter onwards. After the third consecutive quarter (July–September 2022), the MPC held a special meeting on 3 November 2022 and the RBI sent its report to the government.
The instruments of monetary policy
The RBI's instruments fall into two groups: quantitative tools, which affect the overall cost and volume of money, and qualitative tools, which steer credit to or away from particular uses.
Quantitative instruments
Policy rates (the LAF corridor). The policy repo rate is the rate at which the RBI lends to banks against government securities under the Liquidity Adjustment Facility (LAF). It sits in the middle of a symmetric corridor:
| Rate | What it is | Level on 24 October 2026 |
|---|---|---|
| Marginal Standing Facility (MSF) | Penal overnight borrowing by banks, partly by dipping into their SLR holdings; the ceiling | 5.75% |
| Bank Rate | Rate for rediscounting bills; penal rate for CRR and SLR shortfalls (Section 49); aligned with the MSF | 5.75% |
| Policy repo rate | The MPC's rate | 5.50% |
| Standing Deposit Facility (SDF) | Uncollateralised overnight deposits from banks; the floor since April 2022 | 5.25% |
| Fixed reverse repo rate | Used only at the RBI's discretion since the SDF was introduced | 3.35% |
The SDF and MSF are each 25 bp from the repo rate, so a change in the repo rate moves the whole corridor. How these rates work, and why the SDF replaced the reverse repo as the floor, is the subject of Part 4.
Variable rate repo and reverse repo (VRR and VRRR). These are auctions in which banks bid for funds (VRR) or to park funds (VRRR) at rates set by the auction rather than fixed by the RBI. Since September 2025 the main operation is the 7-day auction, with other tenors from overnight to 14 days at the RBI's discretion. Between the August and October 2026 meetings, the RBI ran 55 VRRR auctions to absorb surplus funds.
Cash reserve ratio (CRR). The share of net demand and time liabilities (NDTL) that banks must keep as balances with the RBI, under Section 42 of the RBI Act. Banks earn no interest on it. Raising the CRR drains money from the system; cutting it releases money. The RBI cut the CRR by 100 bp, from 4% to 3.00%, in four 25 bp steps effective from the fortnights beginning 6 September, 4 October, 1 November and 29 November 2025. Banks must keep at least 90% of the required CRR every day.
Statutory liquidity ratio (SLR). The share of NDTL that banks must hold in liquid assets, mainly unencumbered government securities, cash and gold, under Section 24 of the Banking Regulation Act, 1949. It is 18.00% (RBI website, 24 October 2026). The SLR is now used less as a monetary tool and more as a liquidity buffer.
Open market operations (OMOs). Outright purchases (to inject money) or sales (to absorb it) of government securities. OMOs change durable liquidity. In December 2025 the RBI announced ₹1 lakh crore of OMO purchases while easing. Between August and October 2026 it did the opposite, selling ₹1.0 lakh crore of securities as it tightened.
Forex swaps and the Market Stabilisation Scheme (MSS). In a buy/sell swap the RBI buys dollars from banks now and sells them back later, adding rupee liquidity for the swap's term; a sell/buy swap does the reverse. In December 2025 the RBI announced a three-year US$5 billion buy/sell swap. The MSS allows the government to issue securities specifically to absorb surplus liquidity.
Qualitative instruments
- Selective credit control. The RBI can direct banks to restrict or encourage lending for particular purposes, for example lending against sensitive commodities. Section 21 of the Banking Regulation Act gives it power to control bank advances, including their purposes and margins.
- Margin requirements. The margin is the gap between the value of the security pledged and the loan given against it. Raising the margin reduces how much can be borrowed against, say, shares or gold.
- Moral suasion. Persuasion through letters, meetings and speeches, asking banks to act in a certain way without a formal order.
- Direct action and directions. The RBI can issue directions to banks under Section 35A of the Banking Regulation Act. Penalising banks that defy its guidance is the last step.
Qualitative tools matter far less today than in the planned era; priority sector lending (Part 2) is the main surviving form of directed credit.
Liquidity management and the operating target
The MPC sets the repo rate, but nobody borrows at "the repo rate" in the market. The RBI therefore needs an operating target: a market rate that it tries to keep close to the repo rate. That target is the weighted average call rate (WACR), the average rate on overnight unsecured lending between banks in the call money market.
How it works
- When the system has surplus liquidity, banks have spare funds and the call rate falls towards the SDF rate. The RBI absorbs the surplus through VRRR auctions or OMO sales, pushing the call rate back up towards the repo rate.
- When the system is short of liquidity, the call rate rises towards the MSF rate. The RBI injects funds through VRR auctions, OMO purchases or forex swaps.
Because the corridor is only 50 bp wide, the call rate cannot move far from the repo rate however liquidity swings.
The revised framework of September 2025
After an Internal Working Group review, the RBI issued a Revised Liquidity Management Framework on 30 September 2025. Its main points:
- the overnight WACR remains the operating target, though the RBI also tracks other overnight rates such as repo rates in the market;
- the 14-day VRR/VRRR was dropped as the main operation; 7-day operations now play that role;
- the symmetric corridor (SDF and MSF 25 bp either side of repo) is retained;
- the RBI generally gives at least one day's notice of operations;
- OMOs, long-term repos and forex swaps remain the tools for durable liquidity.
A recent example
In mid-2026 liquidity swung into a large surplus. Average daily net absorption under the LAF rose from ₹1.2 lakh crore in July to ₹5.8 lakh crore in August and ₹7.8 lakh crore in September 2026. With that much spare money, the WACR averaged 14 bp below the repo rate between the August and October meetings and drifted towards the SDF rate. That meant money-market rates were looser than the policy rate intended. Part of the October response was therefore operational: the RBI said it would use a mix of tools to bring the call rate back in line with the higher repo rate.
How policy reaches the economy: transmission
A rate change matters only if it changes what households and firms pay and earn. The process is called monetary policy transmission, and it works through several channels at once.
The five channels
- Interest rate channel. A higher repo rate raises money-market rates, then bank lending and deposit rates. Borrowing becomes dearer and saving more attractive, so spending and investment slow.
- Credit channel. Tighter policy reduces banks' willingness and ability to lend and weakens borrowers' balance sheets, so the supply of credit falls, especially to small firms.
- Exchange rate channel. Higher Indian rates relative to foreign rates tend to attract capital inflows and support the rupee. A stronger rupee makes imports such as crude oil cheaper in rupees, which lowers inflation. This is why the Fed's September 2026 hike matters to the RBI.
- Asset price channel. Higher rates tend to lower bond, equity and property prices, which reduces household wealth and firms' ability to raise funds.
- Expectations channel. A credible central bank can shape behaviour simply by signalling its intentions. The October 2026 statement that "rate cuts are off the table in the near term" is an example of forward guidance aimed at expectations.
Lending benchmarks and the EBLR
Banks used to price loans off internal benchmarks they set themselves, most recently the Marginal Cost of Funds based Lending Rate (MCLR) (2016), so policy changes passed through slowly.
The RBI's circular of 4 September 2019 required banks to link all new floating rate personal or retail loans (housing, auto and so on) and floating rate loans to micro and small enterprises to an external benchmark from 1 October 2019. Medium enterprises were added from 1 April 2020. Banks can choose:
- the RBI's policy repo rate;
- the Government of India 3-month or 6-month Treasury Bill yield published by Financial Benchmarks India Pvt Ltd (FBIL);
- any other FBIL benchmark market rate.
The interest rate must be reset at least once every three months. Most banks chose the repo rate. By end-June 2026, 68.2% of banks' outstanding floating rate loans were linked to external benchmarks and 29.6% to the MCLR.
Transmission in the latest cycle
Between February and December 2025 the repo rate fell by a cumulative 125 bp, and it was then held from February 2026. Over February 2025 to August 2026, the October 2026 Monetary Policy Report finds that the weighted average lending rate (WALR) fell by 72 bp on fresh loans and 91 bp on outstanding loans. The weighted average domestic term deposit rate (WADTDR) had fallen by 95 bp on fresh deposits and 53 bp on outstanding deposits. Outstanding loans adjusted quickly because most are now repo-linked and reset automatically.
Lags
Transmission is neither instant nor complete. Deposit rates are fixed for the term of the deposit, many loans are still on older benchmarks, and the effect on spending and prices builds up over several quarters. This is why the MPC looks at projected inflation, not just the latest figure. In October 2026, inflation was still under 6%, but the MPC projected it at about 5.8% on average over the next three quarters and acted in advance.
Policy stances
Alongside the rate, the MPC announces a stance: a signal of the likely direction of future policy. The stances used in recent years:
| Stance | What it signals | Recent use |
|---|---|---|
| Accommodative | Rates may fall further or stay low to support growth | June 2019 to March 2022; April to June 2025 |
| Neutral | Rates could go either way, depending on data | February to May 2019; October 2024 to March 2025; June 2025 to September 2026 |
| Withdrawal of accommodation | Reducing excess liquidity and policy support | April 2022 to September 2024 |
| Calibrated tightening | Rates will not be cut; they may be raised or held | Late 2018 until February 2019; from October 2026 |
The stance is voted on separately from the rate. In October 2026 all six members voted for the hike, but two preferred to stay neutral.
The rate cycle, 2019–2026
2019–2020: easing, then the pandemic
The repo rate began 2019 at 6.50%. The MPC cut it five times in 2019, on 7 February, 4 April, 6 June, 7 August (by an unusual 35 bp) and 4 October, taking it to 5.15%. When COVID-19 struck, meetings were brought forward. On 27 March 2020 the MPC cut by 75 bp to 4.40%, and on 22 May 2020 by another 40 bp to 4.00%, the lowest level under the MPC. It held there for two years.
2022–2023: fighting inflation after the Ukraine war
With inflation well above 6% after Russia's invasion of Ukraine, the MPC changed its stance to withdrawal of accommodation in April 2022. In an unscheduled meeting it raised the repo rate by 40 bp to 4.40% on 4 May 2022, then followed with hikes on 8 June, 5 August and 30 September 2022 (50 bp each), 7 December 2022 (35 bp) and 8 February 2023 (25 bp). That added up to 250 bp, taking the repo rate to 6.50%, where it stayed for two years.
2025: easing as inflation fell
Under Governor Sanjay Malhotra, the MPC cut by 25 bp on 7 February 2025 (to 6.25%), 25 bp on 9 April 2025 (to 6.00%), a front-loaded 50 bp on 6 June 2025 (to 5.50%) and 25 bp on 5 December 2025 (to 5.25%), a total of 125 bp. The CRR was also cut to 3%.
2026: pause, then a hike
The MPC held at 5.25% with a neutral stance in February, April, June and August 2026. Inflation on the new CPI series rose steadily, from 2.74% in January to 4.83% in August and 5.54% in September 2026, as fuel prices rose with the West Asia conflict and a weak monsoon pushed up food prices. On 7 October 2026 the MPC raised the repo rate by 25 bp to 5.50% and changed the stance to calibrated tightening. The next meeting is on 2–4 December 2026.
Limits and debates
Supply shocks and food inflation
Monetary policy works mainly on demand. It cannot make it rain or lower world oil prices. Much of India's inflation comes from supply shocks, such as failed monsoons, vegetable price spikes and crude oil. The usual approach is to "look through" a one-off supply shock but to act if it threatens to spread into wages, core inflation and expectations, the so-called second-round effects. That was exactly the October 2026 argument: the MPC cited "some evidence of elevated inflation expectations and broadening price pressures".
Headline or core inflation
Some economists argue that the RBI should target core inflation (excluding food and fuel), because it cannot control food prices. The counter-argument is that food and fuel are what households actually buy, and food inflation shapes their inflation expectations. The question was raised in the 2025 discussion paper, and the 2026 renewal kept headline CPI. The new CPI series of 2026 reduces food's weight in the index, to about 37% from about 46%, which may make headline inflation somewhat less volatile.
Fiscal dominance
Fiscal dominance describes a situation in which large government deficits, rather than the central bank, effectively decide monetary conditions, for example if the central bank is pushed to finance the deficit or keep rates low to reduce interest costs. India's earlier history had strong elements of this: high CRR and SLR in the 1980s pre-empted bank funds for the government, and the automatic monetisation of deficits through ad hoc Treasury Bills ended only in 1997 (see Part 1). The statutory inflation target and the MPC were designed partly to guard against fiscal dominance, along with fiscal rules under the FRBM Act.
Key facts at a glance
| Objective | Price stability while keeping in mind growth (RBI Act Preamble, 2016 amendment) |
| Framework | Flexible inflation targeting, statutory since 27 June 2016 (Chapter IIIF, Sections 45Z to 45ZO) |
| Earlier frameworks | Monetary targeting (1985); multiple indicators approach (April 1998) |
| Patel Committee report | 21 January 2014: CPI anchor, 4% ± 2%, MPC |
| Framework Agreement | 20 February 2015 |
| Target (Section 45ZA) | 4% CPI, band 2% to 6%, for 1 April 2026 to 31 March 2031 |
| MPC (Section 45ZB) | 6 members (3 RBI, 3 external); constituted 29 September 2016 |
| MPC rules | At least 4 meetings a year, quorum 4, Governor's casting vote, minutes on day 14 |
| Monetary Policy Report | Every six months (Section 45ZM) |
| Failure | Outside the band for 3 consecutive quarters; report under Section 45ZN (only case: November 2022) |
| Policy rates (24 Oct 2026) | Repo 5.50%; SDF 5.25%; MSF and Bank Rate 5.75%; fixed reverse repo 3.35% |
| Reserve ratios (24 Oct 2026) | CRR 3.00%; SLR 18.00% |
| Operating target | Weighted average call rate (WACR), retained in the September 2025 framework |
| Main liquidity operation | 7-day VRR/VRRR auctions (since September 2025) |
| External benchmark lending | Retail and MSE floating rate loans from 1 October 2019 |
| Current stance | Calibrated tightening (from 7 October 2026) |
| Latest CPI inflation | 5.54% in September 2026 (provisional, base 2024=100) |
Exam corner: what to remember
- The objective is price stability while keeping in mind growth. "Keeping in mind growth" is what makes the regime flexible inflation targeting.
- Learn the order: Chakravarty (1985) → multiple indicators (1998) → Patel Committee (January 2014) → Agreement (20 February 2015) → Finance Act 2016 → MPC (29 September 2016).
- The target is set by the government in consultation with the RBI; the repo rate is set by the MPC. Don't mix them up.
- 45ZA target, 45ZB MPC, 45ZI meetings, 45ZL minutes on day 14, 45ZM Monetary Policy Report every six months, 45ZN failure report.
- Failure means three consecutive quarters outside 2–6%, not a single month. It happened once, in 2022.
- The operating target is the WACR, not the repo rate. The repo rate is the policy rate.
- The corridor runs SDF (floor) → repo (middle) → MSF and Bank Rate (ceiling), each 25 bp apart.
- CRR: Section 42 of the RBI Act; SLR: Section 24 of the Banking Regulation Act. Current values: 3% and 18%.
- EBLR from 1 October 2019 for retail and MSE floating rate loans; benchmarks are repo, 3-month or 6-month T-bill, or another FBIL rate.
- Repo rate milestones: 4.00% (May 2020 low), 6.50% (February 2023 peak), 5.25% (December 2025), 5.50% (7 October 2026, first hike since February 2023).
- Qualitative tools: selective credit control, margin requirements, moral suasion, direct action.
For exam-specific syllabus and pattern details, see our pages for RBI Grade B, SBI PO and IBPS PO.
Test yourself
Under the RBI Act, the primary objective of monetary policy is
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Answer: (b) The Preamble, as amended in 2016, makes price stability the primary objective while keeping growth in mind.
Which framework did the RBI adopt in April 1998?
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Answer: (b) The multiple indicators approach replaced the monetary targeting framework of 1985.
The quorum for a meeting of the Monetary Policy Committee is
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Answer: (b) Four members, including the Governor or, in the Governor's absence, the Deputy Governor on the MPC.
Minutes of an MPC meeting must be published on which day after the meeting?
Show answer
Answer: (c) Section 45ZL requires publication on the 14th day, as with the 21 October 2026 minutes of the 5–7 October meeting.
When is the RBI deemed to have failed to meet the inflation target?
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Answer: (b) Failure means average CPI inflation above 6% or below 2% for any three consecutive quarters, which triggers a report under Section 45ZN.
What is the operating target of monetary policy in India?
Show answer
Answer: (b) The RBI aims to keep the overnight WACR close to the policy repo rate, as the September 2025 framework confirmed.
From which date did banks have to link new floating rate retail loans to an external benchmark?
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Answer: (b) The RBI's circular of 4 September 2019 made external benchmarks mandatory from 1 October 2019 (medium enterprises were added from 1 April 2020).
Which of these is a qualitative instrument of monetary policy?
Show answer
Answer: (c) Margin requirements steer credit for particular purposes; the other three affect the overall volume or cost of money.
At its meeting of 5–7 October 2026, the MPC
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Answer: (c) The MPC voted unanimously for a 25 bp hike to 5.50%, its first since February 2023, and moved to a calibrated tightening stance.
The new Consumer Price Index series released by MoSPI in February 2026 uses which base year?
Show answer
Answer: (d) The new series uses 2024=100, replacing the 2012 base, with weights from the Household Consumption Expenditure Survey 2023-24.
Further reading
- Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework (Urjit Patel Committee), January 2014: the blueprint for inflation targeting and the MPC, and the best source on why India chose CPI as its anchor.
- Review of Monetary Policy Framework: A Discussion Paper (RBI, August 2025): the RBI's own review of nine years of inflation targeting, including the headline-versus-core and band-width debates.
- Monetary Policy Report, October 2026: the latest statutory report, with the data behind the October hike, liquidity conditions and transmission.
- RBI, Monetary Policy overview: the RBI's own concise summary of the framework, the MPC process and every instrument, with official definitions.
- Revised Liquidity Management Framework (RBI press release, 30 September 2025): the current rules for liquidity operations and the operating target.
- Michael Debabrata Patra, "Seven Ages of India's Monetary Policy" (RBI speech, January 2020): a former Deputy Governor's tour of India's monetary frameworks from 1935 to inflation targeting.
- Duvvuri Subbarao, Who Moved My Interest Rate? (Penguin, 2016): a former Governor's account of setting rates through the 2008 crisis and the 2013 taper tantrum, before the MPC existed.
Sources
- RBI, Monetary Policy overview: Preamble objective; target notifications of 2016, 2021 and 25 March 2026; failure definition; MPC members, quorum, casting vote; MPC constituted 29 September 2016; definitions of repo, reverse repo, SDF (April 2022), MSF, corridor, Bank Rate (Section 49), CRR, SLR, OMOs; 7-day VRR/VRRR; 2026-27 meeting schedule; minutes on the 14th day; Monetary Policy Report contents (accessed 24 October 2026)
- RBI, Governor's Statement, 7 October 2026: 25 bp hike to 5.50%, SDF 5.25%, MSF and Bank Rate 5.75%, calibrated tightening, "rate cuts are off the table", projections, net LAF absorption, 55 VRRR auctions, ₹1.0 lakh crore OMO sales, WACR 14 bp below repo (accessed 24 October 2026)
- RBI, MPC Resolution, 5–7 October 2026: members, unanimous vote, two members preferring a neutral stance, inflation expectations and broadening price pressures, 5.8% average inflation over three quarters, next meeting 2–4 December 2026 (accessed 24 October 2026)
- RBI, Monetary Policy statements page: 2026-27 policy dates and the publication of minutes on 21 October 2026 (accessed 24 October 2026)
- RBI, MPC Resolution, 3–5 August 2026 and Governor's Statement, 5 August 2026: repo held at 5.25%, neutral stance, CPI projection 5.0%, oil, West Asia and monsoon risks (accessed 24 October 2026)
- RBI, MPC Resolution, 3–5 June 2026 and Governor's Statement, 5 June 2026: hold at 5.25%, FCNR(B) and other capital-flow measures, FPI outflows of US$13.7 billion (accessed 24 October 2026)
- RBI, MPC Resolution, 6–8 April 2026: hold at 5.25%, neutral stance (accessed 24 October 2026)
- RBI, Monetary Policy Report, October 2026: pause from February 2026, cumulative 125 bp easing, EBLR share 68.2%, WALR and WADTDR changes, revised framework operational from 30 September 2025, Fed, ECB and Bank of Japan actions (accessed 24 October 2026)
- RBI, Monetary Policy Report, April 2026: CRR cut by 100 bp to 3.0% during September–November 2025; inflation at historic lows in October 2025 (accessed 24 October 2026)
- RBI website, Current Rates: repo 5.50%, SDF 5.25%, MSF 5.75%, Bank Rate 5.75%, fixed reverse repo 3.35%, CRR 3.00%, SLR 18.00% (accessed 24 October 2026)
- RBI press release, Revised Liquidity Management Framework, 30 September 2025: WACR retained as operating target, 7-day operations, corridor, advance notice, 90% daily CRR (accessed 24 October 2026)
- RBI Annual Report 2025-26, Chronology of Major Policy Announcements: cuts on 9 April, 6 June and 5 December 2025, stance changes, CRR tranches (accessed 24 October 2026)
- RBI Annual Report 2024-25, Chronology of Major Policy Announcements: stance changed to neutral on 9 October 2024; cut to 6.25% on 7 February 2025 (accessed 24 October 2026)
- RBI Annual Report 2022-23, Monetary Policy Operations: 2022-23 hikes from 4 May 2022 to 8 February 2023, 250 bp in total, withdrawal of accommodation from April 2022 (accessed 24 October 2026)
- RBI Annual Report 2020-21, Monetary Policy Operations: March and May 2020 cuts to 4.40% and 4.00% (accessed 24 October 2026)
- RBI Annual Report 2019-20, Chronology of Major Policy Announcements: cuts on 7 August 2019, 4 October 2019, 27 March 2020 and 22 May 2020 (accessed 24 October 2026)
- RBI Annual Report 2018-19, Monetary Policy Operations: February, April and June 2019 cuts and stance changes from calibrated tightening to neutral to accommodative (accessed 24 October 2026)
- RBI, Review of Monetary Policy Framework: A Discussion Paper, 21 August 2025: 2015 Agreement, Act in force from 27 June 2016, first MPC meeting 3–4 October 2016, 2022 breach and 3 November 2022 meeting, inflation peak of 7.8%, food weight and supply shocks, questions for the review (accessed 24 October 2026)
- RBI, Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework: report dated 21 January 2014 (accessed 24 October 2026)
- Business Standard, 21 January 2014: Patel Committee's CPI anchor and 8%/6% glide path (accessed 24 October 2026)
- Michael Debabrata Patra, "Seven Ages of India's Monetary Policy", January 2020: monetary targeting from 1985, multiple indicators approach from April 1998, "check list" criticism (accessed 24 October 2026)
- RBI circular on external benchmark based lending, 4 September 2019: EBLR from 1 October 2019, permitted benchmarks, quarterly reset (accessed 24 October 2026)
- RBI circular on external benchmarks for medium enterprises, 26 February 2020: extension to medium enterprises from 1 April 2020 (accessed 24 October 2026)
- MoSPI, CPI press release for September 2026, 12 October 2026: 5.54% headline, 7.74% food, rural and urban rates, monthly CPI inflation for January to September 2026 (accessed 24 October 2026)
- ETV Bharat, 12 February 2026: launch of the CPI series with base 2024 and January 2026 inflation of 2.75% (accessed 24 October 2026)
- Drishti IAS, 13 February 2026: base revised from 2012 to 2024, 358 items, food weight about 36.75% versus 45.86% (accessed 24 October 2026)
- US Federal Reserve, FOMC statement, 16 September 2026: federal funds target range raised to 3.75–4.00% (accessed 24 October 2026)
- Outlook Business, December 2025: OMO purchases of ₹1 lakh crore and a three-year US$5 billion buy/sell swap announced on 5 December 2025 (accessed 24 October 2026)