RBI Monetary Policy Review April 2026: Repo Rate Decisions, Inflation Projections, and Stance

Repo rate (Repurchase Option) is the benchmark policy rate used by RBI to inject liquidity into the banking system.

The Central Government amended the RBI Act through the Finance Act, 2016 to insert Section 45ZB establishing the statutory six-member MPC.

The MPC consists of 6 members: 3 internal members from the RBI and 3 external experts appointed by the Central Government.

Under Section 45ZB, the Governor of the Reserve Bank of India is the ex-officio Chairperson of the MPC.

Each member has one vote, and in case of an equality of votes (3-3 tie), the Governor has a second or casting vote.

The flexible inflation target is 4% CPI inflation with an upper tolerance limit of 6% and a lower tolerance limit of 2%.

Section 45ZI mandates that the MPC must meet at least four times in a financial year, though in practice it holds bi-monthly meetings (six times annually).

If the average headline CPI inflation exceeds 6% or remains below 2% for any three consecutive quarters, the RBI must submit a formal explanatory report to Parliament.

SDF allows the RBI to absorb excess liquidity from commercial banks without providing government securities as collateral, set 25 bps below the repo rate.

MSF acts as the ceiling of the LAF corridor, set 25 bps above the repo rate, allowing banks to borrow emergency overnight funds dipping into their SLR quota.

The LAF corridor is 50 basis points wide: anchored by the Repo Rate in the middle, SDF 25 bps below as the floor, and MSF 25 bps above as the ceiling.

CRR is maintained under Section 42(1) of the RBI Act to ensure bank solvency and manage liquidity; the RBI pays no interest on CRR balances.

SLR ensures that commercial banks remain liquid and provides a captive domestic market for central and state government borrowing.

Buying government securities injects rupee liquidity into the banking system, while selling government securities absorbs excess money supply.

Monetary stance signals the forward guidance of the central bank to financial markets regarding interest rate trajectories.

It communicates that the central bank is unwinding pandemic-era stimulus and surplus liquidity to anchor price stability.

The Expert Committee to Revise and Strengthen the Monetary Policy Framework headed by Dr. Urjit Patel laid the blueprint for the statutory MPC.

Section 45ZC states that appointed external members hold office for a period of four years and are not eligible for reappointment.

EBLR links retail loan interest rates directly to transparent external market benchmarks like the RBI Repo Rate or Treasury Bill yields.

The RBI conducts daily liquidity operations to guide the Weighted Average Call Rate close to the policy repo rate.

QE involves large-scale asset purchase programs deployed when benchmark policy interest rates approach the zero lower bound.

The FSR evaluates banking system health, gross and net NPAs, capital adequacy ratios (CRAR), and systemic financial stability.

Hawks guard against inflation through tighter credit policies, while Doves favor low interest rates to stimulate business hiring and output.

The Banking Regulation Act, 1949 grants the RBI supervisory authority over bank licensing, corporate governance, capital norms, and board appointments.

MSS bonds absorb durable liquidity surges without altering the central government's fiscal deficit accounts.

Real Interest Rate = Nominal Rate minus Expected/Actual Inflation. A positive real rate rewards savers and curbs speculative asset bubbles.

Reserve Money (M0) is the foundational monetary base issued directly by the central bank that forms the basis for commercial bank credit expansion.

The money multiplier reflects how many units of broad money supply (M3) are created by commercial banks from one unit of central bank reserve money (M0).

Section 45ZL of the RBI Act mandates that the minutes of the proceedings of the MPC meeting, including individual voting records and statements, be published on the 14th day.

Daily liquidity forecasting and market operations ensure smooth liquidity distribution across commercial banking channels.