57th Monetary Policy Committee Meeting of RBI

57th Monetary Policy Committee Meeting of RBI

Why in News?

Recently, the Reserve Bank of India (RBI) concluded its 57th Monetary Policy Committee (MPC) meeting from September 29 to October 1, 2025. In this meeting, the committee decided to maintain the policy repo rate at 5.5%.

Highlights of the 57th RBI Monetary Policy Committee (MPC) Meeting

• The MPC unanimously decided to keep the policy repo rate unchanged at 5.5%, aiming to support economic growth while managing inflation.
• The RBI revised its Consumer Price Index (CPI) inflation forecast for the fiscal year 2025–26 to 2.6%, down from the previous estimate of 3.1%. 
• The committee projects inflation to remain subdued in the near term, with quarterly estimates of 1.8% for Q2 and Q3, 4.0% for Q4, and 4.5% for Q1 of FY27.
• The MPC revised India’s Gross Domestic Product (GDP) growth forecast for FY26 to 6.8%, up from the earlier projection of 6.5%. 
• The committee reiterated its commitment to a neutral monetary policy stance, emphasizing the need to balance the objectives of supporting economic growth and ensuring price stability. 
• The RBI plans to ease certain restrictions on Current, Cash Credit, and Overdraft accounts, providing banks with greater flexibility in lending and improving credit flow to the economy.
• RBI has permitted wider use of Special Rupee Vostro Account (SRVA) balances by making them eligible for investment in corporate bonds and commercial papers to enhance the India currency’s international standing and reduce dependence on foreign currencies.
• The RBI is considering the establishment of reference rates for additional foreign currencies, starting with the Indonesian Rupiah and the UAE Dirham, to facilitate smoother international transactions.

What is the Monetary Policy Committee (MPC)?

• • About: The Monetary Policy Committee (MPC) is a statutory body in India responsible for managing the country’s monetary policy. Its main goal is to control inflation while supporting sustainable economic growth. The MPC ensures that the economy grows steadily without letting prices rise uncontrollably.

• Formation: The MPC was formed after an agreement between the Government of India and the Reserve Bank of India (RBI). The committee was created to implement an inflation-targeting framework, which is part of India’s broader economic strategy. Before 2016, the RBI had a Technical Advisory Committee, which advised on monetary policy. The Finance Act of 2016 amended the RBI Act, 1934, giving the MPC statutory status. This legal change made the MPC’s decisions officially binding and ensured transparency in monetary policy decisions.

• Legal Provisions: Under Section 45ZB of the amended RBI Act, 1934, the central government has the authority to form a six-member MPC. This section defines how members are selected, their tenure, and their roles. 

• Structure: The MPC has six members. This includes the RBI Governor, who serves as the Chairperson, and the RBI Deputy Governor responsible for monetary policy. One officer is nominated by the RBI Board, and the central government appoints three external members. The external members serve a tenure of four years. The committee requires a quorum of four members for any meeting, which must include the RBI Governor or, if absent, the Deputy Governor.

• Functions: 

• • • The MPC’s main task is to set the policy repo rate. The repo rate directly affects borrowing costs in the economy, influencing consumption, investment, and overall economic activity. By adjusting this rate, the MPC aims to keep inflation within the target range, which is currently set at 4% with a tolerance band of +/-2%.
    • The MPC strengthens the framework for transparent decision-making. Its decisions are binding on the RBI, which means the central bank must follow the committee’s directions regarding policy rates. The Monetary Policy Department (MPD) of the RBI supports the MPC by providing research, data, and policy options.
    • The MPC monitors other indicators such as consumer price index (CPI) inflation, wholesale price index (WPI) trends, GDP growth rates, fiscal deficit, and global economic conditions. These data points help the committee make informed decisions.
    • The MPC also plays a role in financial stability. Its policy actions influence credit availability, investment, and business confidence. The MPC protects the purchasing power of consumers and maintains the health of the banking system.

• Decision-Making: The MPC makes decisions based on a majority vote. If the votes are tied, the RBI Governor has the casting vote. This process ensures that decisions are clear and enforceable. The committee meets every two months, which allows it to respond quickly to changes in economic conditions.