The Monetary Policy Committee (MPC) decides India’s policy repo rate, the interest rate that drives every loan and deposit rate in the economy. Questions on the MPC appear in almost every banking exam and in RBI Grade B. This explainer covers it from the basics.
What is the MPC?
The MPC is a six-member committee that decides the policy repo rate needed to keep inflation within the target set by the Government. It was created under the RBI Act, 1934, as amended by the Finance Act, 2016 (Chapter III-F, Section 45ZB). The first MPC was constituted in 2016.
Before the MPC, the RBI Governor alone took rate decisions. The shift to a committee followed the Urjit Patel Committee (2014) report, which recommended flexible inflation targeting.
Composition: six members
| Member | Who |
|---|---|
| Chairperson | RBI Governor |
| Member | Deputy Governor in charge of monetary policy |
| Member | One RBI officer nominated by the RBI Central Board |
| 3 external members | Experts appointed by the Central Government |
- External members serve for four years and are not eligible for reappointment.
- The Governor is the chairperson (Governor Sanjay Malhotra since 11 December 2024).
How the MPC works
| Rule | Details |
|---|---|
| Meetings | At least 4 times a year (in practice, RBI holds 6 bi-monthly meetings) |
| Quorum | 4 members, including the Governor (or the Deputy Governor in his absence) |
| Voting | One member, one vote; decided by majority |
| Tie | The Governor has a second or casting vote |
| Minutes | Published on the 14th day after the meeting |
| Accountability | If inflation stays outside the band for three consecutive quarters, RBI must report to the Government with reasons and remedial action |
The inflation target (2026–2031)
The Central Government, in consultation with RBI, sets the target every five years.
| Item | Target |
|---|---|
| Measure | CPI (Combined) inflation |
| Target | 4% |
| Tolerance band | ±2% (lower limit 2%, upper limit 6%) |
| Current period | 1 April 2026 to 31 March 2031 (notified in March 2026) |
The 4% ± 2% target was first set in 2016 and retained in 2021 and again in 2026.
The key policy rates (after the October 2026 decision)
| Rate | Level |
|---|---|
| Policy repo rate | 5.50% |
| Standing Deposit Facility (SDF) rate | 5.25% |
| Marginal Standing Facility (MSF) rate | 5.75% |
| Bank rate | 5.75% |
In its meeting of 5–7 October 2026, the MPC raised the repo rate by 25 basis points to 5.50% (unanimous), and changed its stance to “calibrated tightening”. Projections: CPI inflation 5.2% and real GDP growth 7.1% for FY27 (as reported).
Rates change at every MPC meeting. Always check the latest RBI policy statement before your exam.
How the repo rate affects you
| When the repo rate goes… | Effect |
|---|---|
| Up | Bank loans become costlier; demand slows; inflation tends to fall |
| Down | Loans become cheaper; spending and investment rise; growth gets support |
The Liquidity Adjustment Facility (LAF) corridor runs from the SDF rate (floor) to the MSF rate (ceiling), with the repo rate in the middle.
Learn more: Explainer: Repo rate and inflation targeting · CRR and SLR
Exam-ready one-liners
- MPC: six members, chaired by the RBI Governor.
- Legal basis: Section 45ZB of the RBI Act, 1934 (inserted by the Finance Act, 2016).
- Quorum: 4. Governor has a casting vote.
- Meets at least four times a year; RBI holds six meetings.
- External members: appointed by the Central Government for 4 years, no reappointment.
- Inflation target: CPI 4% ± 2% for April 2026 – March 2031.
- Minutes published on the 14th day after the meeting.
- Repo rate after October 2026: 5.50%.