Relevance: GS III (Indian Economy – Monetary Policy) | Source: The Indian Express / RBI Press Release
1. The Decision: A Strategic “Pause”
The Reserve Bank of India (RBI) has decided to keep the Repo Rate unchanged at 5.25% for the February 2026 review.
- The Vote: Unanimous (6-0) decision by the Monetary Policy Committee (MPC).
- The Stance: The committee retained a “Neutral” stance. This means the RBI is in “wait-and-watch” mode—it is not actively looking to cut or hike rates immediately but will react to incoming data.
- Context: This pause follows a period of aggressive easing in 2025, where rates were cut by 125 basis points (1.25%).
2. Optimistic Outlook: Growth Up, Inflation Low
The central bank signaled confidence in the Indian economy’s resilience.
- GDP Growth (FY26): Projection raised to 7.4% (from 7.3%), driven by recovering rural demand and strong investment activity.
- Inflation (CPI): Projected at a benign 2.1%. However, the RBI warned of a slight temporary uptick in Q4 due to “unfavourable base effects” (statistical jumps due to low prices last year).
3. Why Not Cut Rates Further?
Despite low inflation, the RBI paused to:
- Assess Impact: Wait for the previous 1.25% rate cuts to fully transmit through the banking system.
- Global Risks: Volatility in global energy prices and trade deals requires a cautious buffer.
UPSC Value Box
Concept / Term | Relevance for Prelims |
| Repo Rate | The rate at which the RBI lends money to commercial banks for the short term. It is the primary tool to control inflation and liquidity. Current Rate: 5.25%. |
| “Neutral” Stance | A policy stance where the central bank has the flexibility to either increase or decrease interest rates based on economic data. It differs from “Accommodative” (willingness to cut rates) or “Tightening” (willingness to hike). |
| Base Effect | The impact of the corresponding period in the previous year on the current year’s data. If prices were abnormally low last year, even a small rise this year looks like high inflation (mathematically). |
Q. With reference to the Monetary Policy Committee (MPC) of India, consider the following statements:
- It is a six-member committee headed by the Governor of the RBI.
- A “Neutral Stance” indicates that the MPC is committed to cutting interest rates in the immediate future to boost growth.
- The primary objective of the MPC is to maintain price stability while keeping in mind the objective of growth.
Which of the statements given above is/are correct?
(a) 1 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Correct Answer: (b)
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