by 
Repo Rate News 2026
During the first Monetary Policy Committee (MPC) meeting of 2026, RBI Governor Sanjay Malhotra announced that the key policy rate, known as the Repo Rate, will remain unchanged at 5.25%.
The RBI also stated that inflation for the financial year 2025–26 is estimated at 2.1%, which is within the acceptable inflation target range. Maintaining the repo rate at the same level reflects RBI’s balanced approach toward sustaining economic growth while ensuring price stability.
Key Highlights of Repo Rate Announcement 2026
- Repo Rate remains unchanged at 5.25%
- Inflation projected at 2.1% for FY 2025-26
- RBI continues to follow a cautious monetary policy approach
- Focus on balancing inflation control and economic growth
- Monetary Policy Committee plays a crucial role in rate decisions
This decision indicates that RBI currently considers inflation under control and does not see an immediate need to change borrowing costs.
What is Repo Rate?
The Repo Rate refers to the interest rate at which the Reserve Bank of India lends short-term funds to commercial banks against government securities. It is called the “Repurchase Rate” because banks sell government securities to RBI with a promise to repurchase them later. In simple terms, when commercial banks face a shortage of funds, they borrow money from RBI and pay interest. This interest rate is called the Repo Rate.
What is Basis Point in Repo Rate?
A Basis Point (BPS) is a unit used to measure small changes in interest rates, including the repo rate. One basis point equals 0.01%, which helps express rate changes accurately without confusion. RBI commonly uses basis points while announcing changes in monetary policy. It allows financial institutions and investors to understand minor fluctuations in interest rates clearly. 100 Basis Points is equal to 1%.
Example: If RBI increases the repo rate from 5.25% to 5.50%, it means the rate has increased by 25 basis points (0.25%).
Repo Rate Objectives
The Repo Rate is a key monetary policy tool used by the Reserve Bank of India (RBI) to regulate inflation, control liquidity, and maintain economic stability. By adjusting the repo rate, RBI influences borrowing costs, credit availability, and overall economic growth.
- Control Inflation: RBI increases the repo rate when inflation rises to reduce money supply and control price increases in the economy.
- Manage Liquidity in the Banking System: Repo rate helps regulate the availability of funds in the banking sector by either injecting or absorbing liquidity.
- Promote Economic Growth: During economic slowdown, RBI reduces the repo rate to encourage borrowing, investment, and consumption.
- Ensure Financial Stability: Repo rate helps banks maintain adequate funds and supports stability in the financial and banking system.
- Regulate Credit Flow: By adjusting borrowing costs for banks, RBI controls the flow of loans to businesses and individuals.
- Balance Demand and Supply: Repo rate helps maintain equilibrium between demand and supply in the economy by influencing spending patterns.
Repo Rate Importance
- Inflation Control: Repo rate helps RBI manage rising prices by controlling money supply in the economy.
- Regulates Liquidity: It ensures proper availability of funds in the banking system by increasing or decreasing liquidity.
- Influences Interest Rates: Changes in repo rate directly affect loan interest rates, EMIs, and deposit returns.
- Supports Economic Growth: Lower repo rates encourage borrowing, investment, and business expansion, boosting economic activity.
- Maintains Financial Stability: Repo rate helps banks manage short-term fund shortages and prevents financial crises.
- Controls Credit Flow: It regulates the amount of loans and credit available to individuals and industries.
- Guides Monetary Policy Implementation: Repo rate acts as the primary instrument through which RBI implements monetary policy decisions.
- Impacts Investment and Consumption: By influencing borrowing costs, repo rate affects spending patterns, investment decisions, and market performance.
Repo Rate: Impact on Indian Economy
The Repo Rate directly influences borrowing costs, inflation, investment, and overall economic growth in India. Changes in the repo rate affect banking operations, consumer spending, business expansion, and liquidity in the financial system.
Impact of Increasing RBI’s Repo Rate
- Borrowing becomes expensive for banks and customers.
- Loan interest rates and EMIs increase.
- Money supply in the economy reduces.
- Helps control inflation and excessive demand.
- Encourages savings due to higher deposit interest rates.
- May slow down economic growth and investment.
Impact of Decreasing RBI’s Repo Rate
- Borrowing becomes cheaper for banks and customers.
- Loan interest rates and EMIs decrease.
- Increases liquidity and money supply in the economy.
- Encourages business expansion and consumer spending.
- Boosts sectors like real estate, infrastructure, and manufacturing.
- Supports economic growth during slowdown.
Monetary Policy Committee (MPC)
The Monetary Policy Committee (MPC) is a statutory body of the Reserve Bank of India responsible for deciding the country’s monetary policy, including setting the repo rate. It was established in 2016 under the RBI Act, 1934, to bring transparency and accountability in monetary policy decisions. The MPC aims to maintain price stability while supporting economic growth.
Composition of Members:
- The MPC consists of 6 members.
- 3 members from RBI – RBI Governor, Deputy Governor in charge of monetary policy, and one RBI official nominated by the Central Board.
- 3 external members appointed by the Government of India.
Voting Method:
- Each member has one vote while deciding monetary policy decisions.
- Decisions are taken based on majority voting.
Casting Vote:
- In case of a tie, the RBI Governor has the casting vote, which is the deciding vote.
Meeting Frequency:
- MPC meets at least six times in a financial year to review economic conditions and decide policy rates.
UPSC CSE PYQs on Repo Rate
Que. Which among the following steps is most likely to be taken at the time of an economic recession? [2021]
A Cut in tax rates accompanied by increase in interest rate
B Increase in expenditure on public projects
C Increase in tax rates accompanied by reduction of interest rate
D Reduction of expenditure on public projects
Que. Which of the following statements is/are correct regarding the ‘Monetary Policy Committee (MPC)? [2017]
1. It decides the RBI’s benchmark interest rates.
2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
3. It functions under the chairmanship of the Union Finance Minister.
Select the correct answer using the code given below:
