RBI Monetary Policy Committee (MPC) meeting decisions

Decisions of the Monetary Policy Committee (MPC):

• The Monetary Policy Committee (MPC) met on the 4th, 5th and 6th of February to deliberate and decide on the policy repo rate. 
• After a detailed assessment of the evolving macroeconomic conditions and the outlook, the MPC voted unanimously to keep the policy repo rate unchanged at 5.25 percent; 
• Consequently, the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) remains at 5.00 percent and the marginal standing facility (MSF) rate and the Bank Rate at 5.50 percent. 
• The MPC also decided to continue with the neutral stance.
• Headline inflation during November-December remained below the tolerance band of the inflation target. 
• In terms of the headline inflation trajectory, despite the anticipated momentum being muted, unfavourable base effects stemming from large decline in prices observed during Q4:2024-25 would lead to an uptick in y-o-y inflation in Q4:2025-26. Considering all these factors, CPI inflation for 2025-26 is now projected at 2.1 percent with Q4 at 3.2 percent. CPI inflation for Q1:2026-27 and Q2 are projected at 4.0 per cent and 4.2 per cent, respectively. Excluding precious metals, the underlying inflation pressures remain muted. The risks are evenly balanced.
• For customer protection, RBI will issue three draft guidelines: one, relating to mis-selling; two, regarding recovery of loans and engagement of recovery agents ; and three, on limiting liability of customers in un-authorised electronic banking transactions. It is also proposed to introduce a framework to compensate customers up to an amount of ₹25000/- for loss incurred in small-value fraudulent transactions.
• The limit of ₹10 lakh for collateral-free loans to MSMEs is proposed to be increased to ₹20 lakh.

Basis Points:

• Basis points (bps) are a standard financial unit used to measure small changes in interest rates, yields, or other percentage-based values.
• They provide precision when expressing movements in financial indicators. For example, a 25 bps hike means a 0.25% increase.
• Basis points are widely used to describe changes in interest rates on loans, savings, bonds, and other financial instruments, ensuring clarity where even minor shifts matter.

Monetary Policy Committee (MPC)

• The idea to set up MPC was mooted by an RBI-appointed Urjit Patel Committee.
• Section 45ZB of the amended RBI Act, 1934 provides for an empowered 6-member Monetary Policy Committee (MPC).
• Some of the major provisions with reference to the MPC are:
  • The Committee is to meet at least 4 times a year.
  • The Committee will have 6 members.
  • The members of MPC shall hold office for a period of 4 years and shall not be eligible for re-appointment.
  • The quorum for a meeting of the MPC is 4 members.
  • The RBI Governor will have a casting vote in case of a tie

Composition of MPC

• • RBI Governor – Chairperson
  • RBI Deputy Governor in charge of monetary policy,
  • One official nominated by the RBI Board,
  • 3 members are appointed by the Central Government based on the recommendations of a search cum selection committee comprised of
    • the Cabinet Secretary
    • the Secretary of the Department of Economic Affairs
    • the RBI Governor, and
    • three experts in the field of economics or banking as nominated by the Central Government.