Economy
RBI Monetary Policy Tools: Repo, CRR, SLR, MPC
The Reserve Bank of India controls liquidity and inflation using policy tools: the repo rate (the rate at which it lends short-term money to banks), CRR and SLR (reserve requirements), and operations such as the Standing Deposit Facility, the Marginal Standing Facility and open market operations. Rate decisions are taken by the six-member Monetary Policy Committee (MPC).
Last reviewed 2026-10-15
Rate-based tools
- Repo rate: the rate at which the RBI lends to commercial banks against government securities. A higher repo rate makes borrowing costlier and tends to reduce inflation.
- Reverse repo rate: the rate at which the RBI borrows from banks.
- Standing Deposit Facility (SDF): introduced in 2022, it lets banks park surplus funds with the RBI without collateral and forms the floor of the liquidity corridor.
- Marginal Standing Facility (MSF): an emergency overnight window for banks, priced above the repo rate. It forms the upper limit of the corridor.
- Bank rate: the long-term lending rate of the RBI, aligned with the MSF rate.
Reserve requirements
- Cash Reserve Ratio (CRR): the share of a bank's net demand and time liabilities (NDTL) that must be kept with the RBI as cash. Banks earn no interest on it.
- Statutory Liquidity Ratio (SLR): the share of NDTL that banks must hold themselves in cash, gold or approved securities such as government bonds.
- Open Market Operations (OMO): buying or selling government securities to add or remove liquidity.
Monetary Policy Committee (MPC)
- Statutory body created by an amendment to the RBI Act, 1934, in 2016.
- Six members: three from the RBI (including the Governor, who chairs it) and three external members appointed by the Central Government.
- The Governor has a casting vote in case of a tie.
- It works under a flexible inflation targeting framework based on CPI inflation with a 4 per cent target and a tolerance band of 2 per cent on either side. Check the latest notification, as the target is reviewed periodically.
Exam tips
Current rate values change often, so learn the definitions and the direction of effect here, then check the latest policy numbers in the daily current affairs edition.
Frequently asked questions
What is the repo rate?
The rate at which the RBI lends short-term funds to commercial banks against government securities.
What is the difference between CRR and SLR?
CRR is kept with the RBI as cash. SLR is held by the bank itself in cash, gold or approved securities.
How many members are in the MPC?
Six: three from the RBI and three external members appointed by the Central Government.