Monetary Policy Tools of RBI: The Short Answer
The monetary policy tools of RBI are the instruments the Reserve Bank of India uses to control money supply, interest rates and inflation. They are split into quantitative (general) tools, which change the total amount of money and credit in the economy (repo rate, SDF, MSF, Bank Rate, CRR, SLR, open market operations, LAF and MSS), and qualitative (selective) tools, which change where credit goes (margin requirements, selective credit control, moral suasion, direct action and credit rationing).
Key takeaway for bank exams (as on 18 October 2026): Repo rate 5.50%, SDF 5.25%, MSF and Bank Rate 5.75%, fixed reverse repo 3.35%, CRR 3.00%, SLR 18.00%. The MPC raised the repo rate by 25 bps on 7 October 2026 (63rd meeting) and changed the stance to calibrated tightening. The MPC decides only the repo rate; CRR, SLR and the other tools are used by RBI itself.
Every rate and date in this note was checked against rbi.org.in (Current Rates panel, the Monetary Policy overview page and the MPC resolution of 7 October 2026). Revise this note together with our CRR and SLR rate 2026 and repo rate history year wise notes.
Current RBI Policy Rates 2026 (Monetary Policy Instruments Table)
Exams love asking the current value of each instrument, so learn this table first.
| Instrument | Current rate (18 Oct 2026) | How it is set | Type of tool |
|---|---|---|---|
| Policy repo rate | 5.50% | Decided by the MPC | Quantitative, policy rate |
| Standing Deposit Facility (SDF) | 5.25% | Repo − 0.25 (floor of corridor) | Quantitative |
| Marginal Standing Facility (MSF) | 5.75% | Repo + 0.25 (ceiling of corridor) | Quantitative |
| Bank Rate | 5.75% | Aligned with MSF | Quantitative |
| Fixed reverse repo | 3.35% | Used at RBI's discretion since SDF came | Quantitative |
| Cash Reserve Ratio (CRR) | 3.00% of NDTL | Set by RBI | Quantitative, reserve ratio |
| Statutory Liquidity Ratio (SLR) | 18.00% of NDTL | Set by RBI | Quantitative, reserve ratio |
Source: rbi.org.in home page "Current Rates", read on 18 October 2026.
What changed in the October 2026 monetary policy?
- Repo rate hiked by 25 bps to 5.50%, voted unanimously by all six MPC members.
- SDF moved automatically to 5.25%; MSF and Bank Rate to 5.75%.
- Stance changed to "calibrated tightening". Two members (Dr. Nagesh Kumar and Prof. Ram Singh) wanted to keep the stance neutral. RBI explained that this stance means rate cuts are off the table in the near term; the next move can only be a hike or a pause.
- Projections: real GDP growth for 2026-27 at 7.1%; CPI inflation for 2026-27 at 5.2%.
- Separately, from the fortnight beginning 16 October 2026, banks must keep at least 99% of the required CRR every day (up from 90%). The CRR rate itself stayed at 3%.
- Next MPC meeting: 2 to 4 December 2026.
Types of Monetary Policy Tools of RBI (Quantitative vs Qualitative)
The most asked question in this topic is simply "which tool is quantitative and which is qualitative?". Use this table.
| Basis | Quantitative (general) tools | Qualitative (selective) tools |
|---|---|---|
| What they control | Total volume and cost of money and credit | Direction and purpose of credit |
| Effect | Whole economy, all sectors | Chosen sectors or borrowers |
| Examples | Repo, reverse repo, SDF, MSF, Bank Rate, CRR, SLR, OMO, LAF, MSS | Margin requirement, selective credit control, moral suasion, direct action, credit rationing, consumer credit regulation |
| Nature | Indirect, market based (mostly) | Direct, administrative |
| Typical use | Fight overall inflation or support growth | Stop speculation or hoarding in one commodity or sector |
A simple trick: if the tool has a rate or ratio with a number, it is quantitative. If it is an instruction or persuasion aimed at a sector, it is qualitative.
Quantitative Monetary Policy Tools of RBI (With Meaning)
Repo rate: the main policy rate
The repo rate is the interest rate at which RBI lends money to banks under the liquidity adjustment facility (LAF) against government and other approved securities. It is the only rate set by the Monetary Policy Committee, and every other rate in the corridor moves with it.
- Higher repo rate → costlier borrowing for banks → higher loan rates → lower demand → lower inflation.
- Lower repo rate → cheaper money → more lending and spending → supports growth.
- Current value: 5.50% (from 7 October 2026).
Standing Deposit Facility (SDF): floor of the corridor
SDF is the rate at which RBI accepts uncollateralised overnight deposits from banks. It was introduced in April 2022 and replaced the fixed reverse repo rate as the floor of the LAF corridor. The big exam point: banks do not need to give government securities to RBI under SDF, which makes it a powerful tool for absorbing surplus money. SDF is set 25 bps below the repo rate (now 5.25%). RBI also calls SDF a financial stability tool.
Marginal Standing Facility (MSF): ceiling of the corridor
MSF is the penal rate at which banks can borrow overnight from RBI by dipping into their SLR securities up to a limit of 2% of NDTL. It acts as a safety valve for sudden cash shortages. MSF is set 25 bps above the repo rate (now 5.75%).
Reverse repo rate
The rate at which RBI absorbs liquidity from banks against collateral of government securities. Since SDF arrived, the fixed rate reverse repo (3.35%) is used only at RBI's discretion. Variable rate reverse repo (VRRR) auctions are still used to absorb money for short periods.
Bank Rate
The rate at which RBI buys or rediscounts bills of exchange and commercial papers. It is published under Section 49 of the RBI Act, 1934. Today it is mainly the penal rate on shortfalls in CRR and SLR. It is aligned with MSF, so it moves automatically when the repo rate changes (now 5.75%).
Cash Reserve Ratio (CRR)
The share of a bank's net demand and time liabilities (NDTL) that it must keep as cash with RBI. RBI pays no interest on it. Legal basis: Section 42(1) of the RBI Act, 1934. Current CRR: 3.00%. A CRR cut releases money for lending in one stroke; a hike drains it. Full history is in our CRR and SLR note.
Statutory Liquidity Ratio (SLR)
The share of NDTL a bank must keep with itself in liquid assets such as cash, gold and unencumbered government securities. Legal basis: Section 24 of the Banking Regulation Act, 1949. Current SLR: 18.00%. Unlike CRR, SLR assets earn interest for the bank.
Open Market Operations (OMO)
Outright purchase or sale of government securities by RBI.
- RBI buys securities → pays money to banks → injects durable liquidity.
- RBI sells securities → takes money from banks → absorbs durable liquidity.
OMOs deal with durable (long-lasting) liquidity, while LAF deals with day-to-day liquidity. This difference is a common one-mark question.
Liquidity Adjustment Facility (LAF) and the LAF corridor
LAF is the umbrella under which RBI injects or absorbs liquidity every day. It includes overnight and term repo, reverse repo (fixed and variable rate), SDF and MSF. The LAF corridor runs from the SDF rate (floor) to the MSF rate (ceiling), with the repo rate in the middle.
| Corridor part | Rate today | Width from repo |
|---|---|---|
| Ceiling: MSF | 5.75% | +25 bps |
| Middle: Repo | 5.50% | 0 |
| Floor: SDF | 5.25% | −25 bps |
Total corridor width: 50 bps. RBI's operating target is the weighted average call rate (WACR), which RBI tries to keep close to the repo rate. The main day-to-day tool is the 7-day variable rate repo/reverse repo auction, with fine-tuning auctions from overnight up to 14 days.
Market Stabilisation Scheme (MSS) and forex swaps
Under MSS, the government issues special treasury bills and dated securities, at RBI's request, to absorb surplus liquidity that usually comes from heavy foreign inflows. The money raised is kept in a separate account and is not used for spending. RBI also uses forex buy/sell swaps to add or drain rupee liquidity; RBI's own list names OMOs, forex swaps and MSS as the liquidity tools outside LAF.
Qualitative Monetary Policy Tools of RBI (Selective Credit Controls)
Qualitative tools do not change the total money supply. They push credit towards or away from particular sectors.
| Qualitative tool | What RBI does | Example |
|---|---|---|
| Margin requirement | Sets the share of a loan the borrower must fund from own money | Raising the margin on loans against shares or gold reduces speculative borrowing |
| Selective credit control | Directs banks to restrict or stop credit for chosen commodities (power under Section 21 of the Banking Regulation Act) | Limits on loans against sensitive commodities to stop hoarding |
| Moral suasion | Persuades banks through letters, meetings and speeches, with no legal force | Governor urging banks to pass on rate cuts faster |
| Direct action | Penalties or restrictions on banks that do not follow RBI directions | Business restrictions or monetary penalties on a bank |
| Credit rationing | Caps the credit available for certain purposes or fixes a quota | Sector-wise ceilings on refinance |
| Consumer credit regulation | Changes down payment and instalment rules for consumer loans | Higher risk weights on unsecured personal loans |
Exam angle: moral suasion has no legal force, and margin requirement is qualitative even though it is expressed as a percentage. Both are frequent traps.
How Monetary Policy Tools of RBI Control Inflation
When inflation is high, RBI follows a tight (hawkish) policy; when growth is weak and inflation is low, it follows an easy (dovish) policy.
| Tool | To control inflation (tight) | To boost growth (easy) |
|---|---|---|
| Repo rate | Increase | Decrease |
| SDF / reverse repo | Increase | Decrease |
| CRR | Increase | Decrease |
| SLR | Increase | Decrease |
| OMO | Sell government securities | Buy government securities |
| MSS | Issue more MSS securities | Reduce or redeem MSS |
| Margin requirement | Increase | Decrease |
The October 2026 decision is a live example of the tight column: CPI inflation rose to 4.8% in August 2026, the MPC projected inflation averaging almost 5.8% over the next three quarters, so it raised the repo rate and moved to calibrated tightening.
Inflation target and the MPC framework
- Flexible inflation targeting got a legal basis through the May 2016 amendment to the RBI Act.
- Target: 4% CPI inflation with a band of 2% to 6%. On 25 March 2026 the Central Government retained this target for 1 April 2026 to 31 March 2031.
- Failure: average inflation above 6% or below 2% for three consecutive quarters; RBI must then report reasons and remedial steps to the government.
- MPC: six members under Section 45ZB (three from RBI including the Governor as chairperson, three external members appointed by the Centre). It meets at least four times a year, quorum is four, and the Governor has a casting vote in a tie. The first MPC was constituted on 29 September 2016.
- Minutes are published on the 14th day after each meeting (October 2026 minutes due on 21 October 2026).
Monetary Policy Tools of RBI: Solved Examples
These are typical calculation-based questions from IBPS PO and SBI PO mains.
Example 1: CRR and SLR amount. A bank has NDTL of ₹20,000 crore. How much must it keep as CRR and SLR at current rates? CRR = 3% of 20,000 = ₹600 crore (with RBI). SLR = 18% of 20,000 = ₹3,600 crore (with the bank). Total locked = ₹4,200 crore.
Example 2: MSF borrowing limit. For the same bank, the MSF limit is 2% of NDTL = ₹400 crore, borrowed at 5.75%.
Example 3: Effect of a CRR cut. If CRR is cut by 50 bps on NDTL of ₹20,000 crore, the bank gets 0.5% × 20,000 = ₹100 crore extra to lend.
Example 4: Corridor arithmetic. The MPC raises the repo rate from 5.25% to 5.50%. New SDF = 5.50 − 0.25 = 5.25%; new MSF = 5.50 + 0.25 = 5.75%; Bank Rate = 5.75%.
Example 5: Interest on an overnight repo. A bank borrows ₹1,000 crore overnight under repo at 5.50%. Interest = 1,000 × 5.50% × 1/365 = about ₹0.15 crore (₹15.07 lakh).
Common Mistakes in Monetary Policy Tools Questions
- Saying the MPC decides CRR or SLR. It decides only the repo rate.
- Calling SDF a collateralised facility. SDF needs no collateral; reverse repo does.
- Treating reverse repo as the floor of the corridor. Since April 2022, the floor is SDF.
- Mixing up OMO and LAF: OMO handles durable liquidity, LAF handles short-term liquidity.
- Writing MSF limit as 1%. RBI's overview gives 2% of NDTL.
- Classifying margin requirement as quantitative. It is a selective (qualitative) tool.
- Quoting old rates. Many 2026 pages still show repo at 5.25%; RBI shows 5.50% from 7 October 2026.
Quick Revision Table: RBI Monetary Policy Tools
| Point | Answer |
|---|---|
| Who decides the repo rate | Monetary Policy Committee (6 members) |
| Repo rate now | 5.50% (7 Oct 2026) |
| Floor of LAF corridor | SDF, 5.25% |
| Ceiling of LAF corridor | MSF, 5.75% |
| Bank Rate section | Section 49, RBI Act 1934 |
| CRR section | Section 42(1), RBI Act 1934 |
| SLR section | Section 24, Banking Regulation Act 1949 |
| MPC section | Section 45ZB, RBI Act 1934 |
| Inflation target | 4% ± 2% CPI, retained to 31 March 2031 |
| Operating target | Weighted average call rate (WACR) |
| Current stance | Calibrated tightening |
| Next MPC meeting | 2 to 4 December 2026 |
Monetary Policy Tools of RBI Questions with Answers (Practice Set)
- Which of the following is a qualitative tool of monetary policy? (a) CRR (b) OMO (c) Moral suasion (d) Repo rate Answer: (c). Moral suasion is persuasion without legal force, a selective tool.
- What is the policy repo rate as on 18 October 2026? (a) 5.25% (b) 5.50% (c) 5.75% (d) 6.00% Answer: (b) 5.50%, after a 25 bps hike on 7 October 2026.
- Which rate forms the floor of the LAF corridor? (a) Reverse repo (b) Bank Rate (c) SDF (d) MSF Answer: (c) SDF, since April 2022.
- To absorb durable liquidity, RBI will: (a) buy G-secs in OMO (b) sell G-secs in OMO (c) cut CRR (d) cut repo Answer: (b). Selling securities takes money out of banks.
- A bank with NDTL of ₹50,000 crore keeps CRR at 3%. Required CRR balance? (a) ₹1,500 crore (b) ₹1,800 crore (c) ₹9,000 crore (d) ₹150 crore Answer: (a) 3% × 50,000 = ₹1,500 crore.
- Under MSF, a bank can borrow up to what share of NDTL from its SLR holdings? (a) 1% (b) 2% (c) 3% (d) 4% Answer: (b) 2%.
- The Bank Rate is published under which section of the RBI Act? (a) 42 (b) 45ZB (c) 49 (d) 24 Answer: (c) Section 49.
- What stance did the MPC adopt in October 2026? (a) Neutral (b) Accommodative (c) Calibrated tightening (d) Withdrawal of accommodation Answer: (c) Calibrated tightening.
- What is the minimum daily CRR balance banks must keep from 16 October 2026? (a) 90% (b) 95% (c) 99% (d) 100% Answer: (c) 99% of the required CRR.
- If the repo rate is 5.50%, what is the width of the LAF corridor? (a) 25 bps (b) 50 bps (c) 75 bps (d) 100 bps Answer: (b) 50 bps (5.25% to 5.75%).
Monetary Policy Tools of RBI FAQs
What are the monetary policy tools of RBI?
They are repo rate, SDF, MSF, reverse repo, Bank Rate, CRR, SLR, open market operations, LAF and MSS (quantitative tools), plus margin requirements, selective credit control, moral suasion, direct action and credit rationing (qualitative tools).
What is the difference between quantitative and qualitative tools of monetary policy?
Quantitative tools change the total amount and cost of money in the whole economy. Qualitative tools change the direction of credit towards or away from particular sectors without changing the total.
What is the current repo rate in October 2026?
5.50%. The MPC raised it by 25 bps at its meeting of 5 to 7 October 2026. SDF is 5.25% and MSF and Bank Rate are 5.75%.
Who decides CRR and SLR in India?
The Reserve Bank of India decides CRR and SLR. The Monetary Policy Committee decides only the policy repo rate.
Which tool is used by RBI to control inflation?
The main tool is the repo rate. RBI raises it to make borrowing costlier, and supports it with liquidity tools such as SDF, variable rate reverse repo auctions, OMO sales and, if needed, a higher CRR.
Is moral suasion a quantitative or qualitative tool?
Qualitative. It is persuasion through letters, meetings and speeches, and it has no legal force.
When is the next RBI monetary policy meeting?
The next MPC meeting is scheduled for 2 to 4 December 2026, followed by 3 to 5 February 2027.
Practice Next
- October 2026 policy questions (repo 5.50%, SDF 5.25%, MSF 5.75%, calibrated tightening): IBPS PO Mains Banking Awareness Mock Test 01.
- Mock tests: IBPS and SBI PO RBI and Monetary Policy Mock Test 01, IBPS and SBI Clerk RBI and Monetary Policy Mock Test 01 and Banking Awareness RBI Functions and Organisation Quiz 01.
- Related notes: CRR and SLR rate 2026, repo rate history year wise, RBI governor list 1935 to 2026, banking terms A to Z and NPA classification and provisioning norms, plus five year plans of India list, plus important committees related to banking, plus inflation and its types.
- Exam details: SBI Clerk 2026 notification.
- Browse all study notes.