With reference to the Monetary Policy Committee (MPC) and its policy tools, consider the following statements: 1. A reduction in the repo rate generally leads to a decrease in the cost of borrowing for commercial banks. 2. A 'neutral' policy stance means the central bank retains the flexibility to either increase or decrease interest rates depending on macroeconomic data. Which of the statements given above is/are correct?

Question

Accepted Answer

C) Both 1 and 2 — Statement 1 is correct as the repo rate is the rate at which the RBI lends money to commercial banks; lowering it reduces their borrowing costs. Statement 2 is correct because a neutral stance implies that the RBI is not committed to only hiking or only cutting rates, giving it flexibility to move in either direction based on inflation and growth metrics.

RBI Monetary Policy Committee Cuts Repo Rate to 6.25%

Draft Amendment to EIA Notification 2026 Published