The Reserve Bank of India's Monetary Policy Committee (MPC) has raised the policy repo rate by 25 basis points to 5.50%, its first increase since February 2023, and changed its policy stance to 'calibrated tightening'. The MPC said the move was meant to address persistent inflationary pressures.
The Standing Deposit Facility (SDF) rate has been adjusted to 5.25%. The Marginal Standing Facility (MSF) rate and the Bank Rate stand at 5.75%.
The stance implies tightening of monetary policy, through higher interest rates or reduced liquidity, in a measured, step-by-step manner instead of aggressive hikes. It also tells the market that the central bank's next move will not be a rate cut.
Before deciding on any further increase, the RBI will assess the impact of the earlier hikes, underlying inflation data and the second-round effects of supply shocks.
Headline CPI inflation (consumer price index) rose to 4.8% in August 2026, driven mainly by food and fuel costs, the MPC noted. The RBI raised its inflation forecast for FY27 by 20 basis points to 5.2%, with core inflation projected at 4.4%.
The growth projection went up. The RBI revised its real GDP growth projection for FY 2026-27 from 6.7% to 7.1%, citing resilient domestic demand and economic activity.
The share of CPI items with inflation above 4% rose to about 37% in August 2026, which indicates that price pressures are spreading across a wider range of goods and services.
Weather is a further concern. A deficient south-west monsoon, ongoing El Niño conditions and reservoir levels about 20% below the previous year have raised concerns about agricultural output and rural demand. Drought-like conditions in several states have pushed up food prices, notably of sugar and onions.
The West Asia conflict has kept global supply chains under pressure. Crude oil prices crossing USD 100 a barrel risk importing inflation into the Indian economy.
The interest-rate differential between India and the United States has also narrowed, as central banks such as the US Federal Reserve keep rates elevated. A rate hike helps prevent outflows of foreign portfolio investment and reduces downward pressure on the rupee.
With reference to the recent decision of the Monetary Policy Committee (MPC) of the Reserve Bank of India, consider the following statements:
Which of the statements given above are correct?
With reference to the stance of 'calibrated tightening' adopted by the Monetary Policy Committee, which one of the following statements is not correct?
Consider the following developments:
How many of the above have been cited as pressures behind the MPC's decision?
