MPC has cut  policy repo rate under the liquidity adjustment facility (LAF) nearly after a five-year gap.

Other important decisions

• To continue a 'neutral' monetary policy stance.
  • A neutral stance indicates that the RBI maintains flexibility in adjusting policy rates based on prevailing economic conditions.
• GDP growth for FY '26 projected at 6.7%.
• Food inflation pressures are likely to see significant "softening", Core inflation expected to rise but remain moderate.

Rationale for MPC decisions

• Inflation has declined and growth is expected to recover from the low of Q2:2024-25.
• Excessive volatility in global financial markets and
• Continued uncertainties about global trade policies coupled with adverse weather events.

About Liquidity Adjustment Facility (LAF)

• It is a monetary policy tool used by central banks to manage liquidity in the banking system. It includes repo and reverse repo rates.
  • The repo rate is the interest rate at which the central bank lends money to banks, while the reverse repo rate is the rate at which banks can park their surplus funds with the central bank.