Monetary Policy Statement, 2026-27 Resolution of the Monetary Policy Committee August 3 to 5, 2026
The Reserve Bank of India's Monetary Policy Committee (MPC), meeting from August 3 to 5, 2026, unanimously voted to keep the policy repo rate unchanged at 5.25%.
The committee, chaired by RBI Governor Sanjay Malhotra, retained a "neutral" monetary policy stance.
Consequently, the Standing Deposit Facility (SDF) rate stays at 5.00%, and the Marginal Standing Facility (MSF) rate and Bank Rate stay at 5.50%.
Real GDP growth for FY 2026-27 was projected at 6.7%, while CPI inflation for the year was projected at 5.0%.
The next MPC meeting is scheduled for October 5-7, 2026.
Monetary Policy Committee (MPC): Composition and Mandate
The MPC is a statutory, six-member body created by the Finance Act, 2016 through insertion of Section 45ZB in the Reserve Bank of India Act, 1934. It is tasked with determining the policy repo rate needed to achieve the inflation target while supporting growth. Its decisions are binding on the RBI.
Key Details
- Composition: the RBI Governor (Chairperson, ex officio), the Deputy Governor in charge of monetary policy (ex officio), one RBI officer nominated by the Central Board (ex officio) — three "internal" members — plus three external members appointed by the Central Government.
- Decisions are taken by majority vote of members present; the Governor has an additional casting vote in case of a tie.
- The first MPC was constituted on September 29, 2016; it meets at least four times a year (in practice, bi-monthly).
- The August 2026 meeting's resolution was carried unanimously among all six members.
The unanimous 6-0 vote to hold rates reflects the MPC's institutional decision process in action — a formal resolution issued after the three-day deliberation, distinct from earlier RBI practice where the Governor alone set rates.
The Liquidity Adjustment Facility (LAF) Corridor
The LAF corridor is the RBI's operating framework for short-term interest rates, built around the repo rate as the policy rate, with the SDF as the floor and the MSF as the ceiling. This corridor structure ensures overnight money market rates stay anchored close to the repo rate, aiding monetary policy transmission.
Key Details
- Policy Repo Rate: the rate at which RBI lends short-term funds to banks against government securities — currently 5.25%.
- Standing Deposit Facility (SDF): introduced in April 2022 as a collateral-free tool for RBI to absorb surplus liquidity from banks; it forms the floor of the corridor, set 25 basis points below the repo rate (5.00%).
- Marginal Standing Facility (MSF): allows banks to borrow overnight from RBI against government securities at a rate above repo, forming the ceiling, typically 25 basis points above repo (5.50%).
- Bank Rate: under Section 49 of the RBI Act, this is administratively aligned with the MSF rate (5.50%) and used for penal provisions and certain refinance operations.
All four rates — repo, SDF, MSF, and Bank Rate — were left unchanged in the August 2026 review, meaning the width and position of the LAF corridor is unchanged, signalling no shift in the RBI's short-term liquidity management stance.
Monetary Policy Stance: Neutral vs Accommodative vs Withdrawal of Accommodation
Alongside the numeric rate decision, the MPC also announces a qualitative "stance," which signals the likely direction of future rate action without being a binding commitment. This is separate from the rate itself and matters for market expectations.
Key Details
- "Accommodative" signals a bias toward rate cuts or easier liquidity to support growth.
- "Withdrawal of accommodation" signals a bias toward tightening to control inflation while still supporting growth.
- "Neutral" signals the MPC is data-dependent, open to moving rates in either direction depending on incoming growth-inflation dynamics.
- "Calibrated tightening" was a stance used historically (2018-19) between neutral and outright tightening.
The MPC retained "neutral" in August 2026, consistent with GDP growth (6.7%) tracking close to potential and CPI inflation (5.0%) staying within the tolerance band but above the 4% target midpoint — a balance that does not yet warrant a directional signal either way.
- Policy Repo Rate: 5.25% (unchanged); SDF: 5.00%; MSF and Bank Rate: 5.50%.
- Real GDP growth (FY27) projected at 6.7%, with quarterly estimates of Q1: 7.0%, Q2: 6.4%, Q3: 6.5%, Q4: 6.8%.
- CPI inflation (FY27) projected at 5.0%, with core inflation estimated at 4.3%.
- This was the 62nd meeting of the MPC since its 2016 constitution.
- Next MPC meeting: October 5-7, 2026.