The RBI's Monetary Policy Committee unanimously held the repo rate at 5.25 percent with a neutral stance in its first bi-monthly meeting for FY 2025-26, chaired by Governor Sanjay Malhotra. The SDF rate stays at 5 percent and the MSF rate and Bank Rate at 5.50 percent. RBI projects FY26 real GDP growth at 6.9 percent, down from FY25's 7.6 percent, and CPI inflation at 4.6 percent, citing West Asia conflict and El Niño as upside inflation risks.

The MPC decision to hold rates reveals how the LAF corridor works as a transmission mechanism. The repo rate — the rate at which RBI lends overnight to banks — sits at the centre of the Liquidity Adjustment Facility corridor. The SDF (Standing Deposit Facility) is the floor at 5 percent, where banks park excess liquidity with RBI without collateral. The MSF (Marginal Standing Facility) is the ceiling at 5.50 percent, where banks borrow emergency overnight funds against government securities. The 50-basis-point corridor between SDF and MSF anchors all short-term money-market rates.

A neutral stance signals that the MPC sees risks balanced between growth and inflation — it is neither biased toward cutting (accommodative) nor hiking (withdrawal of accommodation). This is critically different from the previous 'withdrawal of accommodation' stance, and the examiner frequently tests this distinction.

The GDP projection cut from 7.6 percent (FY25) to 6.9 percent (FY26) reflects the drag from geopolitical uncertainty — higher energy prices, freight costs, and supply-chain disruptions from the West Asia conflict. The 4.6 percent CPI projection stays above the 4 percent target midpoint, explaining why the MPC did not cut despite growth concerns. RBI's exchange rate policy — market-determined rates with intervention only to smooth disruptive volatility, not to target any specific level — is a recurring static concept tested across all three exams.