RBI and Monetary Policy - Revision Sheet
Expect 5-8 questions. Static history and RBI Act sections never change; policy rates change every two months, so always check the latest MPC statement. Figures below are as of October 2026.
1. RBI at a glance
| Item | Fact |
|---|---|
| Recommended by | Hilton Young Commission (1926) |
| Act | RBI Act, 1934 |
| Began operations | 1 April 1935 (Calcutta); central office moved to Bombay in 1937 |
| Nationalised | 1 January 1949 |
| First Governor | Sir Osborne Smith |
| First Indian Governor | C.D. Deshmukh |
| Current Governor | Sanjay Malhotra, 26th Governor, since 11 December 2024 (as of Oct 2026) |
| Deputy Governors | Four (Rohit Jain joined in May 2026) |
| Emblem | Tiger (panther) and palm tree |
| Accounting year | April-March from 2020-21 (earlier July-June) |
2. Important sections of the RBI Act, 1934
| Section | Provision |
|---|---|
| 7 | Central Government may give directions to RBI after consulting the Governor |
| 8 | Composition of the Central Board |
| 17 | Business RBI may transact; 17(5) Ways and Means Advances |
| 22 | Sole right to issue banknotes |
| 24 | Denominations up to Rs 10,000 |
| 26 | Legal tender character; demonetisation of a series |
| 42 | Cash Reserve Ratio |
| 45ZA | Inflation target set by Government in consultation with RBI |
| 45ZB | Monetary Policy Committee |
| 49 | Publication of the Bank Rate |
SLR is NOT in the RBI Act - it is Section 24 of the Banking Regulation Act, 1949. CRR is Section 42 of the RBI Act.
3. Policy rates (as of October 2026)
| Rate | Level | Note |
|---|---|---|
| Policy repo rate | 5.50% | Raised 25 bps on 7 Oct 2026 (from 5.25%) |
| Standing Deposit Facility (SDF) | 5.25% | Repo minus 25 bps; floor of LAF corridor |
| Marginal Standing Facility (MSF) | 5.75% | Repo plus 25 bps; ceiling of corridor |
| Bank Rate | 5.75% | Aligned with MSF |
| Fixed reverse repo | 3.35% | No longer the corridor floor |
| CRR | 3.00% of NDTL | After the 100 bps cut announced in June 2025 |
| SLR | 18.00% of NDTL | - |
The October 2026 MPC changed its stance from neutral to calibrated tightening; it was the first hike since February 2023. Projections for 2026-27: CPI inflation 5.2%, real GDP growth 7.1%.
Rate path to remember: during 2025 the repo was cut from 6.50% to 5.25% (February, April, June and December 2025), held there through mid-2026, and raised to 5.50% in October 2026.
4. Monetary Policy Committee
- Six members: Governor (chair, casting vote), Deputy Governor in charge of monetary policy, one RBI officer nominated by the Board, and three external members appointed by the Government.
- Quorum of four; at least four meetings a year (in practice six).
- Based on the Urjit Patel Committee (2014); Monetary Policy Framework Agreement signed in February 2015; statutory via Finance Act 2016.
- Inflation target: 4% CPI-Combined, band 2%-6%, renewed for 1 April 2026 to 31 March 2031 (notified 25 March 2026).
- Failure = average inflation outside the band for three consecutive quarters; RBI must explain to the Government.
5. Instruments of monetary policy
| Quantitative (general) | Qualitative (selective) |
|---|---|
| Repo / reverse repo / SDF / MSF | Moral suasion |
| CRR and SLR | Margin requirements on loans |
| Open Market Operations | Credit rationing |
| Bank Rate | Direct action |
- OMO purchase of G-secs injects liquidity; OMO sale absorbs liquidity.
- Hiking repo, CRR or SLR is tightening (anti-inflation); cutting them is easing.
- LAF was introduced in June 2000 (Narasimham Committee II). SDF replaced fixed reverse repo as the floor in April 2022.
6. Currency management
- RBI issues all banknotes except the Rs 1 note, which is issued by the Ministry of Finance (signed by the Finance Secretary). Coins are minted by the Government.
- Minimum Reserve System (1957): Rs 200 crore, of which gold at least Rs 115 crore and foreign securities Rs 85 crore.
- Note presses: Nashik and Dewas (Government-owned SPMCIL); Mysuru and Salboni (RBI's BRBNMPL).
- e-Rupee (CBDC): wholesale pilot 1 November 2022; retail pilot 1 December 2022.
7. Functions and subsidiaries
- Functions: monetary authority, issuer of currency, banker to the Government, banker's bank and lender of last resort, regulator and supervisor, manager of foreign exchange (FEMA, 1999), regulator of payment systems.
- Wholly owned subsidiaries: DICGC, BRBNMPL, ReBIT, Reserve Bank Innovation Hub (RBIH). NABARD and NHB are now fully owned by the Government (since 2019).
- Surplus transfer: about Rs 2.87 lakh crore for 2025-26 (approved May 2026), a record, versus Rs 2.69 lakh crore for 2024-25.
Exam favourite: 'Which rate is the floor of the LAF corridor?' - SDF. 'Which rate is the ceiling?' - MSF. The repo rate sits in the middle.