RBI Grade B Current Affairs — 5 October 2026

The Reserve Bank of India's Monetary Policy Committee began its October 2026 meeting on Monday, with markets and analysts anticipating a possible 25-basis-point increase in the repo rate. The MPC, a six-member body, meets every two months to review the policy rate under India's flexible inflation-targeting framework. A rate hike, if confirmed, would signal continued concern about inflation remaining above the RBI's 4 percent target, tightening the cost of borrowing across the economy.

The repo rate is the rate at which the RBI lends short-term funds to commercial banks against government securities. When the MPC raises it, borrowing becomes costlier for banks, which typically pass this on to consumers and businesses through higher lending rates. This slows credit growth, dampens consumption and investment, and — with a lag — brings inflation down. This transmission mechanism is the core of monetary policy as tested in Indian competitive exams.

The MPC was constituted under Section 45ZB of the RBI Act, 1934, inserted by the 2016 amendment. It has six members: three from the RBI (including the Governor, who chairs it) and three external members appointed by the Central Government. Decisions are by majority vote, with the Governor holding a casting vote in case of a tie. The MPC is mandated to maintain CPI inflation at 4 percent, with a tolerance band of ±2 percent (i.e., 2–6 percent).

A 25-basis-point hike means the repo rate moves up by 0.25 percentage points. The LAF (Liquidity Adjustment Facility) corridor runs from the Standing Deposit Facility (SDF) rate at the lower end to the Marginal Standing Facility (MSF) rate at the upper end, with the repo rate as the policy rate in the middle. Any change in the repo rate shifts the entire corridor. For NABARD aspirants, refinancing rates and agricultural credit costs move in tandem with changes in the repo rate, affecting the flow of rural credit.

India's Monetary Policy Committee faces a calibrated dilemma as of October 2025: headline inflation is holding within the RBI's 2–6 percent tolerance band, yet strong economic growth and festive-season demand are stoking pressure that could push prices higher. The MPC must weigh whether to hold the repo rate steady or tighten policy to pre-empt demand-driven inflation — a classic growth-versus-stability trade-off at the heart of inflation targeting.

India's monetary policy framework, formalised under the RBI Act (amended 2016), tasks the MPC with keeping CPI inflation at 4 percent (±2 percent). The primary instrument is the repo rate — the rate at which RBI lends overnight funds to commercial banks. When the MPC raises the repo rate, borrowing becomes costlier for banks, which transmit this through higher lending rates, dampening credit growth, consumption, and investment — thereby cooling demand-pull inflation.

The festive season (October–December) is structurally the highest consumer-demand quarter in India, covering Navratri, Dussehra, Diwali, and year-end purchases. This seasonal surge amplifies demand-pull pressures. If the MPC perceives inflation risk rising even when headline CPI is within the band, it may pre-emptively tighten — or signal a shift in stance from 'accommodative' or 'neutral' to 'withdrawal of accommodation.'

The LAF (Liquidity Adjustment Facility) corridor — bounded by the Standing Deposit Facility (SDF) rate at the floor and the Marginal Standing Facility (MSF) rate at the ceiling — determines how liquidity is managed day-to-day. The repo rate sits in the middle. A rate hike lifts the entire corridor, raising the cost of funds across the banking system.

For NABARD, a repo rate change directly affects refinancing costs, since NABARD's short-term credit lines to cooperative banks and RRBs are priced relative to the policy rate. Higher rates compress agricultural credit affordability, particularly for input-financing loans during kharif and rabi seasons.

External Affairs Minister S Jaishankar has described the proposed India-EU Free Trade Agreement as potentially transformative, saying it could have a cascading impact on the overall bilateral relationship. Negotiations for the India-EU FTA, formally called the Broad-based Trade and Investment Agreement, resumed in 2022 after a decade-long pause. The EU is India's largest trading partner bloc, and both sides are pushing to conclude a comprehensive deal covering goods, services, and investments.

The India-EU FTA, officially termed the Broad-based Trade and Investment Agreement (BTIA), has a long and complicated history. Negotiations began in 2007 but stalled in 2013 over disagreements on tariff reductions, data security, intellectual property rights, and the EU's insistence on labour and environmental standards. They resumed in June 2022 following the India-EU Leaders' Meeting.

The EU collectively is India's largest trading partner, with bilateral trade in goods and services exceeding €120 billion annually. The FTA would potentially cover tariff liberalisation on goods, services market access (especially for Indian IT and professionals), investment protection, and government procurement.

For exam purposes, the key static concepts are: (1) What is an FTA vs. a Comprehensive Economic Partnership Agreement (CEPA)? An FTA primarily covers goods; a CEPA is broader, covering services, investments, and IPR. (2) The EU operates through a Customs Union, meaning individual member states cannot negotiate separate trade deals — the European Commission negotiates on behalf of all 27 members. (3) India already has CEPAs with the UAE and Australia (2022) and a long-standing FTA with ASEAN (2009). The EU FTA, if concluded, would be India's largest trade deal by partner size. (4) Non-tariff barriers, carbon border adjustment mechanisms (CBAM), and the EU's deforestation regulation are complicating factors in current talks.