FAST READ
- The RBI's Monetary Policy Committee (MPC) raised the policy repo rate by 25 basis points to 5.50% on 7 October 2026.
- The stance moved from neutral to calibrated tightening, ending a long pause that followed the 2025 rate cuts.
- It is the first hike since February 2023.
WHY IN NEWS
Retail inflation had accelerated to 4.82% in August 2026, crude oil prices stayed elevated because of West Asia tensions, and the rupee weakened. Against this backdrop the MPC, chaired by Governor Sanjay Malhotra, voted unanimously to tighten policy, while raising its FY27 growth projection.
TOP DATA & FACTS
- Repo rate: raised from 5.25% to 5.50% (+25 bps) on 7 October 2026.
- Stance: changed from neutral to calibrated tightening.
- Real GDP growth projection for FY 2026-27: raised to 7.1%.
- CPI inflation projection for FY27: raised to 5.2% from 5.0%.
- Retail inflation in August 2026: 4.82%.
- The decision was unanimous and is the first increase since February 2023.
PRELIMS
- The repo rate is the rate at which the RBI lends short-term funds to commercial banks against government securities.
- The MPC has six members: three RBI officials and three external members; the Governor chairs it, and the inflation target is 4% with a tolerance band of plus or minus 2 percentage points.
- A higher repo rate raises borrowing costs, which usually lowers demand-driven inflation but can slow credit growth.
- Policy stance describes the direction of future action; calibrated tightening signals that further hikes depend on incoming data.
QUICK REVISION
Repo 5.25% to 5.50%; stance neutral to calibrated tightening; FY27 GDP 7.1% and CPI 5.2%; reasons were inflation, crude oil, West Asia risks and a weaker rupee. Link the move to the flexible inflation targeting framework, transmission to lending rates, and the trade-off between price stability and growth.
PROBABLE OBJECTIVE QUESTION
With reference to the Monetary Policy Committee (MPC) of India, consider the following statements:
- The Governor of the RBI chairs the MPC.
- The MPC fixes the policy repo rate to meet the statutory inflation target.
- All six members of the MPC are officials of the RBI. Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (a) Explanation: The Governor chairs the MPC and it sets the repo rate to achieve the inflation target. Three of the six members are external members appointed by the Government, so statement 3 is incorrect.