The RBI'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 meeting for FY2025-26. The Standing Deposit Facility rate stays at 6.25 percent and the Marginal Standing Facility rate at 6.75 percent. RBI projects real GDP growth at 6.9 percent for FY26, against an estimated 7.6 percent for FY25, and CPI inflation at 4.6 percent. West Asia conflict and El Niño conditions are flagged as upside risks to inflation.

This MPC decision operates within India's flexible inflation-targeting framework, where the RBI targets CPI inflation at 4 percent with a ±2 percent tolerance band. The repo rate is the rate at which commercial banks borrow overnight funds from RBI against government securities. The LAF corridor is structured so the Standing Deposit Facility (SDF) forms the floor, the repo rate is the policy rate in the middle, and the Marginal Standing Facility (MSF) forms the ceiling — each separated by 25 basis points.

A neutral stance signals the MPC is neither committed to cutting nor hiking rates; it is data-dependent. The unanimous vote reflects MPC consensus that current conditions — elevated global energy prices from the West Asia conflict, rupee depreciation, and moderating but sticky inflation — do not justify a rate change.

Transmission mechanism: When repo rate is held steady, bank lending rates remain anchored. This neither stimulates additional credit growth nor tightens it — a deliberate balance when growth is moderating (6.9% from 7.6%) but inflation risks remain. The GDP growth downgrade from 7.6% to 6.9% reflects both global headwinds and domestic demand moderation.

On exchange rate, RBI reiterated its market-determined policy — intervening only to smooth excessive volatility, not to defend a specific rupee level. This is a standard distinction tested in exams: RBI does not target an exchange rate band, only curbs disruptive movements.