RBI MPC Raises Repo Rate to 5.50%

By how many basis points did the RBI's MPC increase the policy Repo Rate, and what is the new rate?

The MPC increased the policy Repo Rate by 25 basis points to 5.50%. This was the first rate hike since February 2023. The RBI also shifted its monetary policy stance from Neutral to Calibrated Tightening.

Following the repo rate hike, what are the newly adjusted rates for SDF, MSF and Bank Rate?

SDF Rate: 5.25%. MSF Rate: 5.75%. Bank Rate: 5.75%.

How did the RBI revise its inflation and real GDP growth projections for FY 2026-27?

Inflation forecast was raised by 20 basis points to 5.2%. Real GDP growth projection was revised upwards from 6.7% to 7.1%. Core inflation for FY27 was projected at 4.4%.

What does Repo stand for, and what is the definition of Repo Rate?

Repo stands for Repurchasing Option or Repurchase Agreement. It is the interest rate at which commercial banks borrow money from the RBI during a short-term liquidity crunch.

How does a higher Repo Rate directly impact consumers and businesses?

A higher Repo Rate makes borrowing costlier for banks, which leads to higher interest rates for consumers and businesses, ultimately slowing borrowing and spending.

What is the effect of a lower Repo Rate on borrowing and spending?

A lower Repo Rate makes loans cheaper for banks, reduces interest rates for borrowers and encourages increased borrowing and spending.

What action does the RBI take regarding the Repo Rate during periods of high inflation, and why?

The RBI increases the Repo Rate to reduce the flow of money in the economy. This makes borrowing expensive, discourages excessive spending and investment, slows money supply and helps ease inflation.

What does a reduction in Repo Rate achieve when the RBI wants to increase liquidity?

The RBI lowers the Repo Rate to make borrowing cheaper, increase liquidity and encourage economic growth.

What does a Calibrated Tightening monetary policy stance mean?

It is a restrictive monetary policy stance under which the central bank signals that it is not inclined to reduce policy interest rates in the near term, while retaining the option to raise rates or keep them unchanged as economic conditions evolve.

How is a Neutral Stance different from an Accommodative Stance?

A Neutral Stance allows policy rates to move upwards or downwards depending on inflation and growth outlook. An Accommodative Stance indicates a preference for supporting economic activity, potentially through lower interest rates.

Who is the present RBI Governor, and who were the longest-serving and shortest-serving RBI Governors?

The present RBI Governor is Sanjay Malhotra (26th Governor). The longest-serving was Sir Benegal Rama Rau, and the shortest-serving was Amitav Ghosh.

What are the five macroeconomic reasons mentioned for RBI's shift to Calibrated Tightening?

1. Broadening Retail Inflation: Rising price pressures across a wider range of goods and services. 2. Strong GDP Growth Outlook: Projected 7.1% growth gives the MPC room to prioritize price stability. 3. Monsoon-related Supply Risks: Weather disruptions may affect agricultural output and food prices. 4. Geopolitical Tensions: Global conflicts may raise energy, commodity and transportation costs. 5. Global Monetary Tightening: Tighter policies by major central banks influence capital flows and exchange rates.

How does Calibrated Tightening affect borrowing costs and bond yields?

It increases borrowing costs as banks may raise lending rates, making loans costlier for households and businesses. Bond yields may also rise if investors expect interest rates to remain elevated or increase further.

What is the negative risk associated with Excessive Restraint in monetary policy?

Excessive restraint may weaken demand and slow economic activity, negatively affecting overall economic growth.

What is Inflation Targeting, and when did India adopt the Flexible Inflation Targeting framework?

Inflation Targeting is a monetary policy framework in which the central bank aims to maintain inflation within a predefined target range. India officially adopted Flexible Inflation Targeting in 2016.

What is India's inflation target and permissible deviation band, and which committee formally set it?

The inflation target is 4%, with a permissible deviation band of +/- 2%. This was formalized by the Urjit Patel Committee in 2014. The 4% target was first proposed by the Chakravarty Committee (1982-85).

Who has the authority to set India's Inflation Target, and how frequently is it reviewed?

The Government of India sets the Inflation Target in consultation with the RBI every five years under the amended RBI Act, 1934.

Under which Act and Section is the Monetary Policy Committee constituted?

The MPC is constituted under Section 45ZB of the Reserve Bank of India Act, 1934.

What is the primary responsibility of the Monetary Policy Committee (MPC)?

Its primary responsibility is setting the Benchmark Policy Rate (Repo Rate) required to contain inflation within the specified target level.

How many members does the MPC have, who constitutes it, and what is its composition?

The Central Government constitutes the six-member MPC. Composition: 1. RBI Governor (Ex-Officio Chairperson). 2. Deputy Governor in charge of Monetary Policy. 3. One RBI officer nominated by the Central Board. 4. Three members appointed by the Central Government. Thus, three members are from the RBI and three are appointed by the Government of India.

How frequently must the MPC meet, and what is its quorum?

The MPC must meet at least four times each year. Quorum requires at least four members, including the RBI Governor or, in his absence, the Deputy Governor.

How does the MPC make decisions, and what happens in case of a tie?

Decisions are made by majority vote. In case of a tie, the RBI Governor exercises a Casting Vote. MPC decisions are binding on the RBI.

What is the fundamental difference between Repo Rate and Reverse Repo Rate?

Repo Rate is the rate at which the RBI lends money to commercial banks. Reverse Repo Rate is the rate at which the RBI borrows money from commercial banks.

What does the Statutory Liquidity Ratio (SLR) mandate, and what happens when the RBI raises it?

SLR mandates the minimum percentage of deposits that a commercial bank must maintain in the form of liquid cash, gold or other securities. Raising SLR tightens monetary policy because banks have less money available for lending, thereby absorbing liquidity from the market.

Which RBI window allows banks to borrow overnight funds, and how does its interest rate compare to Repo Rate?

The Marginal Standing Facility (MSF) allows banks to borrow overnight funds. Its interest rate is higher than the Repo Rate.

How does Bank Rate differ from Repo Rate in terms of duration, and what happens when Bank Rate increases?

Bank Rate is a long-term rate at which the central bank lends to other banks, whereas Repo Rate is a short-term rate. An increase in Bank Rate increases interest rates on loans and deposits, and vice versa.

What is Cash Reserve Ratio (CRR), and how does an increase in CRR affect lending rates?

CRR requires banks to hold a certain proportion of their deposits as cash with the RBI. An increase in CRR generally leads banks to increase lending rates.

What are Open Market Operations (OMO)?

OMO refers to the purchase or sale of Government Securities by the central bank to inject or absorb durable liquidity in the banking system. Purchasing securities injects money into the economy, while selling securities absorbs money from the economy.

In the Strategic Disinvestment Programme, which bank's 60.72% stake was approved for sale, and to whom?

The government approved the strategic sale of a 60.72% stake in IDBI Bank to Fairfax Financial Holdings, a Canadian financial services and investment group.

Which state launched India's first State-level Red List of Ecosystems Project, and what is its purpose?

Kerala, through the Kerala State Biodiversity Board, launched India's first State-level Red List of Ecosystems Project. Its purpose is to assess the risk of ecosystem collapse across Kerala.

What technological tool did the Indian Embassy in Indonesia introduce to enhance public outreach regarding Indian culture?

The embassy introduced Dewi, an AI-powered Avatar.

What is CERVAVAC, and who developed it?

CERVAVAC is India's first indigenously developed Recombinant Quadrivalent Human Papillomavirus (HPV) Vaccine. It was developed by the Serum Institute of India and received WHO prequalification.

Whose strategies and which book inspired the core concept of the RBI?

The RBI's concept was inspired by Dr. B. R. Ambedkar's strategies in his book The Problem of the Rupee – Its Origin and Its Solution.

Who was the first RBI Governor, and who was the first Indian RBI Governor?

Sir Osborne Smith was the first RBI Governor. C. D. Deshmukh was the first Indian RBI Governor.

What were the major RBI establishment milestones in 1926, 1934, 1935 and 1949?

1926: Hilton Young Commission recommended the establishment of RBI. 1934: Reserve Bank of India Act was passed. 1935: RBI was formally established on 1 April in Calcutta. 1949: RBI was nationalized; previously it was privately owned.

What four authorities does RBI exercise over commercial banks under its Supervisory Function?

RBI has the authority to issue bank licences, authorize the opening of branches, prescribe minimum reserves and inspect commercial banks.

What is RBI's technical role as the Issuer of Currency Notes regarding notes and government-minted coins?

RBI exchanges and destroys currency notes while government-minted coins are circulated by the RBI.

What are the three responsibilities of RBI as Manager of Foreign Exchange?

1. Custodian: Manages India's foreign exchange reserves. 2. Regulation: Governs the forex market through exchange rules. 3. Currency Stability: Intervenes to stabilize USD/INR currency volatility.

Why is RBI called the Banker to Other Banks? State its three key functions.

1. Custodian of the cash reserves of commercial banks. 2. Lender of Last Resort. 3. Bank for central clearance, settlements and transfers.

How does RBI function as the Banker to the Government?

It manages all financial operations of the Central Government under the RBI Act, 1934; acts as banker to State Governments through agreements; and offers short-term financial advances to governments to meet temporary mismatches.

What is the core goal of RBI as a Monetary Authority?

RBI aims to maintain price stability while promoting economic growth.