What it means
Its six-member Monetary Policy Committee meets every two months to decide the repo rate, the rate at which banks borrow from the RBI. Its decisions move bond yields, the rupee and rate-sensitive shares such as banks, property companies and car makers. The RBI also steps into the currency market to smooth sharp moves in the rupee.
In practice
Policy days are among the most important dates on an Indian trader's calendar. Bank Nifty, the rupee and government bonds react to the rate decision and even more to the governor's comments on what comes next.
Between meetings, traders follow inflation figures and the RBI's stance, since both shape expectations for the next decision. Many reduce positions or stay out in the minutes around the announcement.
What to watch for
As with every central bank, the market reacts to the surprise, not to the decision itself. A rate cut that was fully expected can be followed by a fall if the outlook that comes with it is cautious.
Related terms
4 terms- Central bankThe institution that sets a country's interest rates: the Fed, ECB, Bank of England, Bank of Japan and others.
- Interest rateThe price of money set by central banks; higher rates usually lift the currency and weigh on stocks and gold.
- USD/INRThe exchange rate between the US dollar and the Indian rupee: how many rupees one dollar costs.
- Bank NiftyAn NSE index of India's largest and most traded bank stocks, long a favourite of derivatives traders.