Understanding RBI MPC Policy: A Clear Guide for Everyone

Introduction of the RBI MPC?

Introduction - The Monetary Policy Committee of the Reserve Bank of India (MPC-RBI) is a critical tool for influencing India’s economy. It decides on several key rates, manages inflation figures according to their target, promotes growth, and maintains financial stability.  Let’s take a look at what the RBI MPC does and how it will help make our economic future better.

What Is the RBI Monetary Policy Committee?

The Monetary Policy Committee (MPC) is the six-member internal body of the Reserve Bank of India which sets India’s benchmark interest rates, especially its repo rate, in order to meet the government’s inflation target while trying to encourage economic growth. The committee consists of three Members of the RBI, including its Governor, who is the chair of the MPC; and three external experts appointed by the government, each for a four-year term. 

The MPC meets at least four times a year. Decisions of the MPC are made by majority vote, with the Governor having a casting vote in the case of a tie.

Why RBI MPC Matters: Balancing Inflation and Growth

India's house of price targeting lies at an end of consumer price inflation (CPI), maintaining CPI at an approximately 4% (+/- 2%), requiring monitoring between growth and prices. The MPC will use the repo rate, SDF (standing deposit facility) and MSF (marginal standing facility) to alter the cost of lending with implications for the money supply.

Recent RBI MPC Decisions in 2025: Rate Cuts and Holds

1. February 2025 – First Repo Rate Cut since 2020

• The MPC reduced the repo rate by 25 basis points to 6.25%, marking its first cut in nearly five years,  under newly appointed Governor Sanjay Malhotra.
• The SDF rate dropped to 6%, and MSF/bank rate to 6.5%.
• The stance remained neutral, reflecting caution despite improved inflation outlook.
• GDP growth for FY26 was projected at 6.7%, with inflation expected at 4.2% 

2. April 2025 – Further Easing, Shift to Accommodative

• The repo rate fell another 25 bps to 6.00%.
• The MPC shifted its stance to accommodative, signaling an emphasis on boosting growth
• Inflation projection lowered to 4.0%, and GDP growth estimation trimmed slightly to 6.5% 

3. June 2025 – Big Cut and Liquidity Boost

• A sharp 50 bps cut in repo rate brought it down to 5.50%—a bold move to enhance economic stimulus 
• The CRR (Cash Reserve Ratio) was slashed from 4% to 3% in phased tranches, injecting ~₹2.5 lakh crore into the banking system 
• MPC reverted to a neutral stance as policy space narrowed.

4. August 2025 – Holding Steady with Caution

• The repo rate remained at 5.50%, with the stance staying neutral 
• Inflation forecast for FY26 was lowered further to 3.1%, while GDP growth was maintained at 6.5% 
• The CRR cut, announced earlier, will come into effect in phases from September onwards 

Why These MPC Actions Matter for You

• Borrowers: Lower repo or cash reserve ratios means lower interest on loans. Banks do not always pass these reductions on completely, but borrowers will generally find their indicative EMIs ease - especially new borrowers.
• Savers: While rate reductions typically mean deposit returns will decrease, it still makes sense to compare fixed deposit rates or look at low risk alternatives.
• Businesses & Markets: Cheaper credit yields increased spending and investment. Rate sensitive areas of the economy were negatively affected in August 2025 (for example, real estate, NBFC, several stocks declined).

How the MPC Supports Financial Stability

• Managing liquidity: By cutting cash reserve ratio and performing Open Market Operations (OMOs), we ensure sufficient liquidity—in February 2025, RBI doubled bond buying to ₹40,000 crore due to liquidity shortfalls. 
• Forex intervention: RBI intervenes through swaps and reserves to stabilize the rupee. As of early 2025, suo reserves were above $630 billion—providing more than 10 months of import cover. 
• Transparency and accountability: Each MPC decision is publicly available, together with minutes and individual views, which is essential for credibility. 

Quick Recap of 2025 MPC Journey

Feb 2025, 6.25% , Neutral, First cut since 2020; growth and inflation balanced

Apr 2025,  6.00%, Accommodative, Growth focus; benign inflation outlook

June 2025, 5.50%, Neutral, Big cut + CRR easing; liquidity push

Aug 2025, 5.50%, Neutral, Holds rate; inflation down to 3.1%

Closing Thoughts: RBI MPC Policy and the Road Ahead 

The RBI MPC’s Perkins-like 2025 journey from neutrality to easing back to caution demonstrates the flexibility needed to respond to shifting economic realities. Given the care and balance taken during instances of elevated inflation, witnessing upward trends in inflation and GDP growth leading into 2025 may prompt the MPC to keep the policy accommodative but vigilant.

What Is the RBI Monetary Policy Committee?

The Monetary Policy Committee (MPC) is the six-member internal body of the Reserve Bank of India which sets India’s benchmark interest rates, especially its repo rate, in order to meet the government’s inflation target while trying to encourage economic growth.

Recent RBI MPC Decisions in 2025: Rate Cuts and Holds

1. February 2025 – First Repo Rate Cut since 2020 The MPC reduced the repo rate by 25 basis points to 6.25%, marking its first cut in nearly five years, under newly appointed Governor Sanjay Malhotra. The SDF rate dropped to 6%, and MSF/bank rate to 6.5%. The stance remained neutral, reflecting caution despite improved inflation outlook. GDP growth for FY26 was projected at 6.7%, with inflation expected at 4.2% 2. April 2025 – Further Easing, Shift to Accommodative The repo rate fell another 25 bps to 6.00%. The MPC shifted its stance to accommodative, signaling an emphasis on boosting growth Inflation projection lowered to 4.0%, and GDP growth estimation trimmed slightly to 6.5% 3. June 2025 – Big Cut and Liquidity Boost A sharp 50 bps cut in repo rate brought it down to 5.50%—a bold move to enhance economic stimulus The CRR (Cash Reserve Ratio) was slashed from 4% to 3% in phased tranches, injecting ~₹2.5 lakh crore into the banking system MPC reverted to a neutral stance as policy space narrowed. 4. August 2025 – Holding Steady with Caution The repo rate remained at 5.50%, with the stance staying neutral Inflation forecast for FY26 was lowered further to 3.1%, while GDP growth was maintained at 6.5% The CRR cut, announced earlier, will come into effect in phases from September onwards .

Why RBI MPC Matters: Balancing Inflation and Growth

India's house of price targeting lies at an end of consumer price inflation (CPI), maintaining CPI at an approximately 4% (+/- 2%), requiring monitoring between growth and prices. The MPC will use the repo rate, SDF (standing deposit facility) and MSF (marginal standing facility) to alter the cost of lending with implications for the money supply. .