RBI and monetary policy
What the policy is for, who decides it, the words RBI uses, and how to read a policy statement
Position as on 7 October 2026, the date of the latest policy announcement
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask who in the room read anything about the 7 October policy, and what they remember. Most will remember one number. This deck is about everything around that number: the target, the committee, the stance and the documents. The rates themselves are covered in the deck 'RBI's toolkit'.
Monetary policy is RBI's use of interest rates and the supply of money to keep prices stable.
The law gives it one primary objective: price stability, while keeping in mind the objective of growth. Since 2016 price stability has had a number attached to it.
Trainer notes
The wording 'price stability while keeping in mind the objective of growth' is from the preamble to the RBI Act as amended in 2016. Monetary policy is separate from fiscal policy, which is the Government's own taxing, spending and borrowing.
The target, the law and the test
- 4%
The target
Consumer price inflation of 4%, in a band of 2% to 6%. Kept unchanged in March 2026, up to 31 March 2031.
- 2016
The law
The RBI Act was amended in May 2016. The Government sets the target once in five years, in consultation with RBI.
- 3
The test
RBI has failed if average inflation stays above 6% or below 2% for three quarters in a row. It must then report why to the Government.
Take-away: This is flexible inflation targeting: a number to aim at, a band around it, and growth kept in mind.
Sources: Reserve Bank of India Act, 1934, preamble and sections 45ZA and 45ZN; RBI, Monetary Policy overview (target reviewed 25 Mar 2026; failure factors).
Trainer notes
The current target period runs from 1 April 2026 to 31 March 2031. The first target was notified on 5 August 2016 and was also retained in March 2021. If the test is failed, RBI's report must give the reasons, the remedial actions it proposes and an estimate of the time needed to return to the target. One high monthly figure is not a failure under this test.
Who decides: the six-member committee
| What the law and RBI's rules say | |
|---|---|
| Members | Six. Three from RBI: the Governor as chairperson, the Deputy Governor for monetary policy and one RBI officer. Three appointed by the Government. |
| Voting | One vote each; the majority decides. On a tie the Governor has a casting vote. Quorum is four, with the Governor or his deputy. |
| Meetings | At least four a year by law. Six are scheduled for 2026-27, and the dates for the year are announced in advance. |
| Minutes | Published on the 14th day after each meeting. They show each member's vote and a written statement of that member's reasons. |
| Reports | A Monetary Policy Report once every six months, with RBI's projections of inflation and growth and the risks around them. |
Sources: RBI Act, sections 45ZB, 45ZI, 45ZL and 45ZM, and RBI's Monetary Policy Committee and Monetary Policy Process Regulations, 2016, as set out on RBI's Monetary Policy overview page.
Trainer notes
The committee is the Monetary Policy Committee, or MPC, first constituted on 29 September 2016. The three Government-appointed members hold office for four years. The present three, notified on 1 October 2024, are Dr. Nagesh Kumar, Shri Saugata Bhattacharya and Prof. Ram Singh. Governor Sanjay Malhotra chaired the October 2026 meeting.
The stance words, in RBI's own terms
| Stance | What RBI has said it means | When it applied |
|---|---|---|
| Accommodative | Unless there is a shock, the committee is weighing only two options: hold the rate or cut it. | 9 April 2025 to 6 June 2025 |
| Neutral | RBI has said this stance gives it the flexibility to remain nimble and respond to incoming data. | Until 9 April 2025, then 6 June 2025 to 7 October 2026 |
| Calibrated tightening | Rate cuts are off the table in the near term. The next action can only be a rise or a pause. | From 7 October 2026 |
Take-away: The stance signals the direction of the policy rate. RBI says it gives no direct guidance on liquidity.
Sources: Governor's Statement, 9 Apr 2025; Governor's speech, 12 May 2026; Monetary Policy Statements, 7 Feb and 6 Jun 2025, 7 Oct 2026.
Trainer notes
The stance is guidance 'given the current conditions', not a promise. The accommodative stance of April 2025 was changed back to neutral at the very next meeting. In October 2026 two of the six members, Dr. Nagesh Kumar and Prof. Ram Singh, wanted to keep the neutral stance. Use RBI's words when a client asks; do not add a forecast of your own.
The repo rate, meeting by meeting
| Repo rate (%) | |
|---|---|
| Feb 25 | 6.25 |
| Apr 25 | 6.00 |
| Jun 25 | 5.50 |
| Aug 25 | 5.50 |
| Oct 25 | 5.50 |
| Dec 25 | 5.25 |
| Feb 26 | 5.25 |
| Apr 26 | 5.25 |
| Jun 26 | 5.25 |
| Aug 26 | 5.25 |
| Oct 26 | 5.50 |
Read the chart
- Four cuts in 2025 took the rate from 6.50% to 5.25%: 25, 25, 50 and 25 basis points.
- The committee then held the rate at 5.25% at four meetings in 2026.
- On 7 October 2026 it raised the rate to 5.50%. All six members voted for the rise.
Source: RBI Monetary Policy Statements (resolutions of the Monetary Policy Committee) for the eleven meetings from 7 Feb 2025 to 7 Oct 2026. Each is listed on the sources slide.
Trainer notes
Each bar is the rate announced on the last day of that meeting. The meeting shown as 'Oct 25' ran from 29 September to 1 October 2025. Ten of the eleven rate decisions were unanimous; in June 2025 one member voted for a 25 basis point cut instead of 50. The rate before February 2025 was 6.50%. 100 basis points is 1 percentage point.
Why the committee often waits: the lag
A rate change does not reach prices at once. It works through the economy in stages.
Days: money markets
Overnight and short-term market rates move almost at once.
Months: bank rates
By June 2026, sixteen months after the first cut, average rates on existing bank loans were down 91 of the 125 basis points.
Quarters: prices
A 2012 RBI staff paper put the peak effect of a rate change on one inflation measure at five quarters.
So the committee waits
In August 2025 it held the rate to wait for its earlier cuts to pass through to credit markets and the economy.
Sources: RBI Governor's Statement, 5 Aug 2026; RBI Working Paper 9/2012 (press release of 25 Jun 2012); RBI Monetary Policy Statement, 6 Aug 2025.
Trainer notes
Because of the lag, the committee sets today's rate against where it expects inflation to be some quarters ahead; this is why every statement carries projections. The 2012 paper is its authors' estimate, not an official RBI figure, and it measured inflation in non-food manufactured products. Treat 'five quarters' as an indication of scale only. The deck 'How interest rates work' shows the pass-through to loans and deposits.
Where things stand
From the policy statement of 7 October 2026. The projections are RBI's own and change at each meeting.
- POLICY REPO RATE
- 5.50%Raised 25 basis points by a 6-0 vote. Stance changed by 4 votes to 2.
- RBI INFLATION PROJECTION
- 5.2%CPI inflation for the year 2026-27. RBI projects 6.0% for October to December.
- RBI GROWTH PROJECTION
- 7.1%Real GDP growth for 2026-27.
- MINUTES DUE
- 21 OctFor the October meeting. Next meeting: 2 to 4 December 2026.
Source: RBI Monetary Policy Statement, 2026-27, Resolution of the Monetary Policy Committee, October 5 to 7, 2026 (Press Release 2026-2027/1264).
Trainer notes
RBI's quarterly inflation projections for 2026-27 are 4.9% for July to September, 6.0% for October to December and 5.7% for January to March, with 5.6% for April to June 2027. These are RBI's projections, quoted as such. We do not predict the next decision and we do not suggest what a client should do because of it.
How to read a policy statement
The decision
The repo rate, and how the six members voted. A split vote tells you the committee was not of one mind.
The stance
The word used, whether it changed, and who disagreed. Read RBI's own explanation of the word.
The projections
Inflation and growth, quarter by quarter. Compare them with the projections made at the previous meeting.
The reasons
Which pressures the committee names: food, fuel, core inflation, global events, demand at home.
After the day
The Governor's statement covers liquidity and bank rates. The minutes, two weeks later, give each member's reasoning.
Trainer notes
Three documents come out on policy day: the committee's resolution, the Governor's statement and a statement on developmental and regulatory policies. The last one is about banking and market rules, not the rate. The Monetary Policy Report comes out with the April and October policies. Core inflation is explained in the deck 'Inflation: types and causes'.
If you learnt this from older material
The rates and the corridor have also changed. The deck 'RBI's toolkit' covers those.
What older decks say
- There was no statutory committee and no inflation target in the RBI Act.
- Its aims are price stability and enough credit for productive sectors.
- RBI alone decides, and its reasoning is not published member by member.
What holds now
- The committee meets at least four times a year; six meetings are set for 2026-27.
- The primary objective in law is price stability, keeping growth in mind (2016).
- Six members vote. Votes and reasons are published on the 14th day (2016).
Sources: Reserve Bank of India Act, 1934, as amended in 2016 (preamble, sections 45ZB and 45ZL); RBI, Monetary Policy overview and meeting schedule for 2026-27.
Trainer notes
Material written before 2016 describes a different system: no committee, no target in law, and a policy cycle built around an annual statement. The committee's meeting schedule for 2026-27 is April, June, August, October, December and February.
Four things people get wrong
Misconception'The Governor decides the repo rate.'
What is trueSix members vote, one vote each. The Governor has a second, casting vote only if the votes are tied.
Misconception'Inflation above 6% means RBI has failed.'
What is trueThe test is average inflation outside the 2% to 6% band for three quarters in a row, not one month's figure.
Misconception'The stance is a promise.'
What is trueIt signals direction under current conditions. The April 2025 stance was changed at the very next meeting.
Misconception'A rate change works at once.'
What is trueMoney markets move in days and bank rates over months. The effect on prices takes quarters.
Trainer notes
On the second point: the target itself is 4%, so inflation between 4% and 6% is above target but inside the band. On the third: RBI said in October 2026 that the next action would be a rise or a pause 'depending on the evolving conditions and the outlook'.
Check yourself
Question 1: The repo rate was 6.50% at the start of 2025. RBI cut it by 25, 25, 50 and 25 basis points, then raised it by 25. Where does it stand?
Answer: The cuts total 125 basis points, or 1.25 percentage points: 6.50% − 1.25% = 5.25%. The rise of 0.25 takes it to 5.50%.Question 2: Average inflation in three quarters running is 6.3%, 6.5% and 5.8% (assumed figures). Has RBI failed to meet its target under the rules?
Answer: No. The third quarter is back inside the 2% to 6% band, so there are not three quarters in a row outside it. Had the third been 6.1%, RBI would have to report to the Government the reasons, its remedial actions and the time needed.Question 3: RBI's stance is 'calibrated tightening'. A client asks whether rates will go up in December. What can you say?
Answer: Only what RBI has said: rate cuts are off the table in the near term, and the next action can be a rise or a pause depending on conditions. The next meeting is 2 to 4 December 2026. We do not predict the decision.
Sources and disclaimer
Sources for the figures in this explainer
- Objective, target, failure test, committee, voting, minutes, reports, 2026-27 schedule: RBI Act, 1934 (preamble, ss. 45ZA, 45ZB, 45ZI, 45ZL, 45ZM, 45ZN) and RBI, Monetary Policy overview, rbi.org.in.
- Repo rate 2025: RBI Monetary Policy Statements, Press Releases 2024-2025/2094 (7 Feb), 2025-2026/61 (9 Apr), /489 (6 Jun), /841 (6 Aug), /1216 (1 Oct), /1633 (5 Dec).
- Repo rate 2026: RBI Press Releases 2025-2026/2053 (6 Feb), 2026-2027/36 (8 Apr), /385 (5 Jun), /809 (5 Aug), /1264 (7 Oct). Rate of 6.50% before February 2025: statement of 6 Dec 2024.
- Stance meanings: RBI Governor's Statement, 9 Apr 2025; RBI Monetary Policy Statements of 7 Feb 2025, 6 Jun 2025 and 7 Oct 2026.
- Projections, votes, minutes date and next meeting: RBI Monetary Policy Statement, Press Release 2026-2027/1264, 7 Oct 2026.
- Pass-through to bank rates: RBI Governor's Statement, 5 Aug 2026. Lag to inflation: RBI Working Paper 9/2012, press release of 25 Jun 2012.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).