{"id":75978,"date":"2026-06-06T18:05:12","date_gmt":"2026-06-06T12:35:12","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=75978"},"modified":"2026-06-06T18:05:46","modified_gmt":"2026-06-06T12:35:46","slug":"mpc-policy-decision","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/06-06-2026\/mpc-policy-decision","title":{"rendered":"MPC Retains Repo Rate, Lowers Growth Forecast"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>The Monetary Policy Committee (MPC)<\/strong> voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged<strong> at 5.25%.<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The<strong> standing deposit facility (SDF) rate<\/strong> remains at 5% and the <strong>marginal standing facility (MSF) rate and the Bank Rate at 5.50%.<\/strong><\/li>\n\n\n\n<li>The <strong>real GDP growth for 2026-27 is projected at 6.6%<\/strong> down from earlier projection of 6.9% with Q1 at 6.6%; Q2 at 6.3%; Q3 at 6.5%; and Q4 at 6.8%.\u00a0<\/li>\n\n\n\n<li><strong>CPI inflation for 2026-27 <\/strong>is projected to be at 5.1% which is 50 basis points more than the earlier projection with Q1 at 4.2%; Q2 at 5.1%; Q3 at 5.9%; and Q4 at 5.4%.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is the Repo Rate?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The repo rate is the<strong> rate at which the RBI lends short-term money <\/strong>to commercial banks. <strong>It is the key policy tool <\/strong>used by the RBI to control liquidity, inflation, and economic growth.<\/li>\n\n\n\n<li><strong>A lower repo rate <\/strong>means banks can borrow from the RBI at cheaper rates. This encourages banks to lower lending rates, leading to:\n<ul class=\"wp-block-list\">\n<li>Easier access to credit for consumers and businesses<\/li>\n\n\n\n<li>Boost in investment, consumption, and economic activity<\/li>\n\n\n\n<li>Increased liquidity and money supply<\/li>\n\n\n\n<li>This can stimulate growth, especially during economic slowdowns.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full is-resized\"><img data-dominant-color=\"fafbfb\" data-has-transparency=\"false\" loading=\"lazy\" decoding=\"async\" width=\"661\" height=\"479\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/06\/image-40.png\" alt=\"mpc retains repo rate\" class=\"not-transparent wp-image-75979\" style=\"--dominant-color: #fafbfb; width:349px;height:auto\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/06\/image-40.png 661w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/06\/image-40-300x217.png 300w\" sizes=\"auto, (max-width: 661px) 100vw, 661px\" \/><\/figure>\n<\/div>\n\n\n<p><\/p>\n\n\n\n<div class=\"wp-block-group has-background\" style=\"background-color:#fff2cc\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p><strong>What is the Monetary Policy Committee (MPC)?<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The MPC is a <strong>statutory body<\/strong> established under the <strong>RBI Act, 1934<\/strong> (amended in 2016).<\/li>\n\n\n\n<li>It is responsible for <strong>fixing the benchmark interest rate<\/strong> (repo rate) to maintain price stability while keeping growth in mind.<\/li>\n\n\n\n<li><strong>It consists of 6 members:<\/strong>\n<ul class=\"wp-block-list\">\n<li>3 from the RBI (including the Governor as Chairperson),<\/li>\n\n\n\n<li>3 external members appointed by the Government.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Functioning:<\/strong> It meets <strong>at least four times <\/strong>a year (usually bi-monthly) and the decisions are made by majority, and each member has one vote. In case of a tie, the <strong>RBI Governor has the casting vote.<\/strong><\/li>\n<\/ul>\n\n\n\n<p><strong>Flexible Inflation Targeting Framework (FITF)<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>India adopted a Flexible Inflation Targeting Framework (FITF) in <strong>2016.<\/strong> Under this, the government, in consultation with the RBI, <strong>sets an inflation target every five years.<\/strong><\/li>\n\n\n\n<li>Under this framework, the Government sets the inflation <strong>target every five years <\/strong>in consultation with the RBI. The current mandate, effective until <strong>March 31, 2026,<\/strong> specifies a CPI inflation target of <strong>4%<\/strong>, with a tolerance band of <strong>\u00b12%<\/strong>, i.e. between 2% and 6%.<\/li>\n<\/ul>\n\n\n\n<p><strong>Monetary Policy Tools in India<\/strong><\/p>\n\n\n\n<p>Various instruments used by the RBI to control the money supply can be categorized into two categories:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Quantitative Tools:<\/strong> Quantitative tools of monetary policy are aimed at controlling the cost and quantity of credit.<\/li>\n\n\n\n<li><strong>Qualitative Tools:<\/strong> Qualitative tools of monetary policy are aimed at controlling the use and direction of credit.<\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full is-resized\"><img data-dominant-color=\"d2caba\" data-has-transparency=\"false\" loading=\"lazy\" decoding=\"async\" width=\"482\" height=\"273\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/06\/image-41.png\" alt=\"\" class=\"not-transparent wp-image-75980\" style=\"--dominant-color: #d2caba; width:404px;height:auto\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/06\/image-41.png 482w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/06\/image-41-300x170.png 300w\" sizes=\"auto, (max-width: 482px) 100vw, 482px\" \/><\/figure>\n<\/div>\n\n\n<p><strong>Quantitative Tools<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Repo Rate:<\/strong> Rate at which RBI lends short-term funds to banks against collateral.<\/li>\n\n\n\n<li><strong>Reverse Repo Rate<\/strong>: Rate at which RBI absorbs liquidity from banks.<\/li>\n\n\n\n<li><strong>Cash Reserve Ratio (CRR)<\/strong>: Portion of deposits banks must keep with RBI in cash.<\/li>\n\n\n\n<li><strong>Statutory Liquidity Ratio (SLR): <\/strong>Portion of deposits kept in liquid assets (gold, cash, securities).<\/li>\n\n\n\n<li><strong>Open Market Operations (OMO): <\/strong>Buying\/selling of government securities to control liquidity.<\/li>\n\n\n\n<li><strong>Marginal Standing Facility (MSF): <\/strong>Emergency borrowing by banks at a penal rate.<\/li>\n\n\n\n<li><strong>Liquidity Adjustment Facility (LAF):<\/strong> Framework for repo\/reverse repo operations.<\/li>\n\n\n\n<li><strong>Market Stabilisation Scheme (MSS): <\/strong>Bonds issued to absorb excess liquidity.<\/li>\n<\/ul>\n\n\n\n<p><strong>Qualitative Tools<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Margin Requirement: <\/strong>Controls loan-to-value ratio.<\/li>\n\n\n\n<li><strong>Consumer Credit Regulation: <\/strong>Regulates credit terms.<\/li>\n\n\n\n<li><strong>Rationing of Credit:<\/strong> Limits sectoral lending.<\/li>\n\n\n\n<li><strong>Moral Suasion: <\/strong>Persuasive guidance by RBI.<\/li>\n\n\n\n<li><strong>Direct Action: <\/strong>Penal action against non-compliant banks.<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Reasons Behind the recent Policy Decision<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Geopolitical Uncertainty:<\/strong> The MPC decided to maintain the repo rate due to heightened geopolitical tensions in West Asia, which have worsened global economic uncertainty.<\/li>\n\n\n\n<li><strong>Supply-Side Shock:<\/strong> The MPC highlighted that the Indian economy is facing a supply-side shock, primarily due to <strong>disruptions in energy and commodity markets<\/strong>.<\/li>\n\n\n\n<li><strong>Inflation Within the Target Range:<\/strong> Retail inflation remains within the <strong>2\u20136% target band<\/strong>, and core inflation is contained limiting the need for immediate policy action.<\/li>\n\n\n\n<li><strong>Impact of Trade Agreements: <\/strong>India recently signed trade agreements with the United States, the European Union, Oman and New Zealand.\n<ul class=\"wp-block-list\">\n<li>These agreements are expected to boost exports and investments, reduce external vulnerabilities, and support medium-term growth.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Impact on the Indian Economy<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Impact on Borrowers and Households:<\/strong> Stable interest rates reduce financial uncertainty for middle-class households and housing loan borrowers.<\/li>\n\n\n\n<li><strong>Impact on Investment and Credit Growth:<\/strong> Stable interest rates, strong demand conditions, and trade agreements create a predictable environment for private investment.<\/li>\n\n\n\n<li><strong>Macroeconomic Stability: <\/strong>The decision reinforces the credibility of India\u2019s Flexible Inflation Targeting framework and demonstrates institutional stability in monetary policymaking.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Way Ahead<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Safeguard External Sector Stability:<\/strong> Active liquidity management, prudent forex reserve deployment, and monitoring of global financial conditions are necessary to cushion against external shocks.<\/li>\n\n\n\n<li><strong>Enhance Fiscal-Monetary Coordination:<\/strong> Continued fiscal consolidation alongside targeted public spending will complement monetary policy and sustain long-term growth without triggering inflationary pressures.<\/li>\n<\/ul>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.thehindu.com\/business\/Economy\/rbi-mpc-policy-repo-rate-unchanged-june-5-2026\/article71064055.ece\" target=\"_blank\" rel=\"noopener\"><strong>TH<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong> Context <\/strong><\/p>\n<li class=\"ms-5\"> The Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.25%. <\/li>\n<p><\/p>\n<p><strong> About <\/strong><\/p>\n<li class=\"ms-5\"> The standing deposit facility (SDF) rate remains at 5% and the marginal standing facility (MSF) rate and the Bank Rate at 5.50%. <\/li>\n<li class=\"ms-5\"> The real GDP growth for 2026-27 is projected at 6.6% down from earlier projection of 6.9% with Q1 at 6.6%; Q2 at 6.3%; Q3 at 6.5%; and Q4 at 6.8%.\u00a0 <\/li>\n<li class=\"ms-5\"> CPI inflation for 2026-27 is projected to be at 5.1% which is 50 basis points more than the earlier projection with Q1 at 4.2%; Q2 at 5.1%; Q3 at 5.9%; and Q4 at 5.4%. <\/li>\n<p><a href=\" https:\/\/www.nextias.com\/ca\/current-affairs\/06-06-2026\/mpc-policy-decision \" class=\"btn btn-primary btn-sm float-end\">Read More<\/a><\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-75978","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/75978","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=75978"}],"version-history":[{"count":2,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/75978\/revisions"}],"predecessor-version":[{"id":75983,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/75978\/revisions\/75983"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=75978"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=75978"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=75978"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}