The Reserve Bank of India's Monetary Policy Committee, chaired by Governor Sanjay Malhotra, unanimously held the repo rate at 6.5 percent with a neutral stance in its first bi-monthly review of 2025-26. The Standing Deposit Facility rate stays at 6.25 percent and the Marginal Standing Facility rate at 6.75 percent. The RBI projected real GDP growth at 6.9 percent for FY26, down from 7.6 percent in FY25, citing West Asia conflict risks and possible El Niño conditions. CPI inflation is projected at 4.6 percent.

The MPC decision involves three interlocking mechanisms every aspirant must understand.

**LAF Corridor mechanics:** The repo rate sits at the centre of the Liquidity Adjustment Facility corridor. The SDF rate (floor) is always 25 basis points below repo, and the MSF rate (ceiling) is always 25 basis points above. When the repo rate is 6.5%, the SDF is 6.25% and MSF is 6.75%. A 'neutral stance' means the MPC is neither committed to cutting nor hiking — it retains optionality based on incoming data.

**Inflation targeting framework:** Under the amended RBI Act, the MPC must keep CPI inflation at 4% ± 2%. Projecting inflation at 4.6% keeps it within the tolerance band but above the 4% target, explaining why rates remain unchanged rather than being cut. The twin upside risks — energy prices from the West Asia conflict and El Niño affecting food prices — make the MPC cautious.

**Growth-inflation tradeoff:** Lower GDP growth (6.9% vs 7.6% in FY25) might ordinarily prompt rate cuts to stimulate demand. But with inflation still above 4% and external risks elevated, the MPC chose to hold. This illustrates the classic monetary policy dilemma — easing to support growth risks reigniting inflation. The unanimous vote signals consensus, not division.

**Exchange rate policy:** RBI reaffirmed market-determined exchange rates, with intervention only to curb disruptive volatility — not to defend a specific level. This is distinct from a fixed or managed peg.