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.