Context:

• The Reserve Bank of India (RBI) held the 58th and 5th bi-monthly Monetary Policy Committee (MPC) meeting of Financial Year 2025–26 (FY26) from 3–5 December 2025.

Key Points:

• The meeting was chaired by RBI Governor Sanjay Malhotra.
• MPC Members present: Dr. Nagesh Kumar, Sougata Bhattacharya, Prof. Ram Singh, Dr. Poonam Gupta, and Indranil Bhattacharya.
• The MPC unanimously voted to reduce the policy repo rate while maintaining a neutral stance; one member suggested a more accommodative approach.
• RBI announced open market operations (OMO) involving the purchase of government securities worth ₹1 lakh crore and a USD/INR swap of $5 billion.

Monetary Policy Rates and Stance:

• The MPC decided to cut rates to support economic activity in view of a sharp fall in inflation and early signs of slowdown in growth.

Economic Projections:

• GDP: In Q2 (July–September 2025), GDP recorded a high growth of 7.2%.
• Inflation: CPI inflation for FY26 revised to 2.0%.

Liquidity Management and Forex Operations:

• Open Market Operations (OMO): RBI announced the purchase of government securities worth ₹1 trillion (₹1 lakh crore) to ensure adequate and durable liquidity.
• USD/INR Swap: A 3-year USD/INR buy/sell swap of $5 billion was approved.
• Forex Reserves: As of 28 November 2025, India’s foreign exchange reserves stood at $686.2 billion, covering more than 11 months of imports.

Consumer Protection:

• Campaign: RBI proposed a special 2-month campaign starting 1 January 2026 to resolve all pending complaints that have been with the Lokpal for over a month.

Monetary Policy Committee (MPC)

• The MPC is a six-member committee of the RBI that determines policy interest rates (mainly the repo rate) to control inflation and balance economic growth in India.
• Chair: RBI Governor
• External Members: Three experts appointed by the Government.
• Main Goal: Maintain price stability within the government-specified inflation target (currently 4% ± 2%) and promote economic growth through bi-monthly meetings.

Objectives:

• Price stability (control inflation)
• Promote economic growth

Composition of MPC (6 Members):

• Decision Making: By majority; in case of a tie, the Governor has the casting vote.
• Meetings: At least 4 times a year, usually every 2 months.
• Main Instruments: Repo Rate
• Establishment: 2016, to increase transparency and accountability.

Key Instruments Used by the MPC

• Repo Rate: The rate at which RBI lends short-term funds to commercial banks. Reducing repo rate lowers borrowing costs for banks and allows them to offer cheaper loans to customers.
• Reverse Repo Rate: The rate at which RBI borrows from commercial banks (or pays interest on their excess funds).
• Standing Deposit Facility (SDF): The rate at which banks can deposit funds with the RBI without collateral. Acts as a floor similar to the repo rate.
• Marginal Standing Facility (MSF): The rate at which commercial banks can borrow from the RBI in extreme short-term or emergency situations.

Note: The MPC influences inflation and growth by managing liquidity and the cost of credit in the Indian economy.