What is Repo Rate? A Comprehensive Guide to Understanding Its Impact

What is Repo Rate?

The repo rate, short for repurchase rate, is the interest rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks in exchange for government securities as collateral. When banks face a liquidity crunch or need immediate funds to meet their obligations, they borrow from the RBI at this rate. The term “repo” signifies a repurchase agreement where banks agree to buy back the securities on a specified date at a pre-agreed price.

But the repo rate is more than just a borrowing cost for banks—it’s a crucial lever of India’s monetary policy. By adjusting this rate, the RBI controls the money supply, liquidity, and inflation in the economy. For instance, when inflation is high, the RBI increases the repo rate, making borrowing more expensive and reducing the flow of money. When economic growth slows down, the repo rate is cut to encourage borrowing and stimulate demand.

This makes the repo rate a key indicator for home loan interest rates, business loans, and overall credit availability. Even subtle changes in the repo rate can affect your loan EMIs, fixed deposit returns, and investment planning. The repo rate is closely watched by investors, businesses, and policymakers alike, as it signals the central bank’s view of the economy.

Understanding the repo rate helps individuals and businesses anticipate changes in interest rates, adjust their financial strategies, and make informed decisions in a constantly shifting economic environment.
 

Why Should You Keep Track of Repo Rate?

Keeping track of the repo rate is essential for anyone managing finances—whether you're a salaried individual, investor, entrepreneur, or policymaker. That’s because even a small change in the repo rate can significantly affect your borrowings, savings, and investment decisions.

When the RBI changes the repo rate, it influences how much interest banks pay to borrow money. If the repo rate increases, banks pass on the cost to customers by raising interest rates on loans. This means your home loan EMI or personal loan could become more expensive. On the other hand, if the repo rate drops, loan interest rates usually come down, offering some relief to borrowers and encouraging more spending and investment.

For savers, a higher repo rate may lead to better returns on fixed deposits and other interest-based savings instruments. Meanwhile, a lower repo rate could result in lower deposit rates, prompting savers to explore alternative investment options like mutual funds or equities.

The repo rate also reflects the RBI’s stance on inflation and economic health. A high repo rate suggests efforts to control inflation, while a low rate points to stimulus measures for economic growth.

Moreover, keeping track of repo rate changes helps you predict trends in the repo linked lending rate, understand shifts in banking policies, and prepare for fluctuations in interest rates across sectors. In short, being aware of the repo rate empowers you to make smart, timely, and well-informed financial decisions.
 

Current Repo Rate in India

As of April 9, 2025, the current repo rate in India is 6.00%, following a 25 basis point cut from the previous 6.25%. This decision was announced during the RBI Monetary Policy Committee (MPC) meeting, led by the new Governor, Sanjay Malhotra. The rate cut is seen as a strategic move to address slowing GDP growth, low urban consumption, and subdued inflation.

This is the first repo rate reduction since the pandemic-induced changes in 2020. It signals the RBI’s intention to stimulate economic activity by making borrowing cheaper for both individuals and businesses. A repo rate cut means commercial banks can access funds from the RBI at a lower cost. In turn, this allows banks to reduce interest rates on various loans, including home loans, personal loans, and business loans.

The home loan repo rate, which is linked directly to the repo rate, becomes more affordable after such cuts. For new borrowers, this means lower EMIs and improved loan eligibility. For existing borrowers, especially those with floating interest rates, it could lead to substantial savings over the loan tenure.

The repo linked lending rate (RLLR) offered by banks also tends to adjust in response to changes in the repo rate, impacting the overall lending landscape.

Tracking the current repo rate gives a clear idea of where the economy is headed and helps individuals and businesses align their financial planning with broader monetary trends. Whether borrowing or investing, knowing the repo rate can guide smarter decisions.
 

Reserve Bank of India Repo Rate

The Reserve Bank of India (RBI) uses the repo rate as a key tool to manage the country’s money supply, inflation, and overall economic stability. Set by the Monetary Policy Committee (MPC), the repo rate reflects the RBI’s stance on current economic conditions and is reviewed every two months during policy meetings.

When the RBI wants to curb inflation, it raises the repo rate, making borrowing costlier for commercial banks. This leads to higher interest rates on loans for consumers and businesses, ultimately reducing spending and slowing down inflation. On the other hand, during periods of sluggish economic growth, the RBI may lower the repo rate to make credit more affordable and boost investment and demand.

The repo rate serves as the benchmark for various lending rates, including the home loan repo rate and repo linked lending rate. Its changes ripple across sectors—impacting loans, deposits, and market sentiments.

The RBI doesn’t just use the repo rate to support banks; it also uses it strategically to influence wider economic goals. By adjusting this rate, the central bank ensures financial stability, encourages growth when needed, and reins in inflation during overheated phases of the economy.

Historical Repo Rates from 2024 to 2010

Understanding the historical repo rates gives valuable insights into how the Reserve Bank of India (RBI) has responded to various economic scenarios over the years. These adjustments reflect the RBI’s efforts to balance inflation, economic growth, and liquidity in the financial system.

From 2024 to 2025, the repo rate mostly held steady at 6.50%, until a 25 basis point cut in February 2025, followed by another cut in April, bringing it down to 6.00%. These rate cuts were driven by concerns over a slowing GDP and weak consumer demand, even as inflation remained low.

In the pandemic years (2020–2021), the repo rate was sharply reduced to 4.00% to support the economy during the COVID-19 crisis. This historically low rate remained unchanged for an extended period to ensure liquidity and support credit growth.

Prior to that, in 2018 and 2019, the repo rate fluctuated between 6.00% and 6.50% due to changing inflationary pressures and global uncertainties.

Going further back, during 2013 to 2015, repo rates ranged from 7.75% to 8.00%, reflecting the RBI’s attempt to combat inflation. Between 2010 and 2012, rates were higher, generally above 7%, as the central bank aimed to manage high inflation levels.

Overall, the changes in repo rate over time highlight the RBI’s adaptive policy measures in response to domestic and global economic conditions. Studying these trends helps borrowers, investors, and businesses anticipate future moves and plan financial strategies accordingly.

Calculation of Repo Rate by the Reserve Bank of India

The repo rate is not fixed randomly—it is carefully calculated by the Reserve Bank of India (RBI) based on various economic indicators. The central authority responsible for determining the repo rate is the Monetary Policy Committee (MPC), which meets every two months to review the current economic environment.

When calculating the repo rate, the RBI takes into account several factors:

• Inflation Trends: One of the primary goals of setting the repo rate is to manage inflation. If inflation is rising beyond the RBI’s comfort zone, the repo rate is increased to reduce money supply and curb spending.
• GDP Growth: If the economy is slowing, the RBI may lower the repo rate to encourage borrowing and investment, supporting economic growth.
• Liquidity in the Banking System: The RBI adjusts the repo rate to ensure banks have adequate liquidity to lend money to businesses and consumers.
• Global Economic Conditions: The central bank also monitors international trends that could impact India’s economy, such as crude oil prices, currency fluctuations, and foreign interest rates.

Through a balance of these factors, the RBI sets a repo rate that aligns with its dual mandate of maintaining price stability and ensuring economic growth, making it a critical tool in India's monetary policy framework.
 

What is Affected by a Change in Repo Rate?

A change in the repo rate has a direct and widespread impact on various parts of the economy. Since the repo rate is the rate at which the RBI lends to commercial banks, any increase or decrease affects the cost of borrowing for banks, which they pass on to their customers.

When the repo rate increases, banks pay more to borrow funds from the RBI. As a result, they raise interest rates on loans such as home loans, personal loans, and business loans. This leads to higher EMIs for borrowers and can slow down spending and investments. On the other hand, a repo rate cut makes borrowing cheaper, encouraging more loans, boosting consumption, and stimulating economic growth.

Interest earned on fixed deposits and other savings instruments also fluctuates with the repo rate. A higher repo rate can lead to better returns for savers, while a lower rate may push investors toward other assets like mutual funds or equities.

Businesses are also affected, as changes in loan costs can influence expansion plans, working capital management, and pricing strategies. In essence, changes in repo rate touch almost every financial decision—be it borrowing, saving, or investing.
 

What is Reverse Repo Rate?

The reverse repo rate is the interest rate at which the Reserve Bank of India (RBI) borrows money from commercial banks. It is the exact opposite of the repo rate, where the RBI lends money to banks. This tool helps the RBI absorb excess liquidity from the banking system and maintain financial stability.

When banks have surplus funds, instead of lending them out, they may choose to deposit them with the RBI at the reverse repo rate. Since the RBI is a risk-free borrower, this becomes a safe and attractive option, especially when the economy is uncertain or credit demand is low.

The reverse repo plays a crucial role in tightening or easing liquidity in the market. For instance, when inflation is high and there’s too much money circulating in the economy, the RBI may increase the reverse repo rate. This encourages banks to park more funds with the RBI, reducing the money supply in the market.

Unlike the repo rate, the reverse repo rate is always lower, ensuring that banks prefer lending to the market when conditions are stable. Together, these two rates help the RBI manage monetary policy effectively, influencing borrowing, lending, and overall economic activity.
 

Difference Between Repo Rate and Reverse Repo Rate

Here’s a quick comparison of the repo rate and the reverse repo rate to help you understand their distinct roles in India’s monetary policy:

Both rates work together to help the RBI maintain balance in the financial system, ensuring price stability and liquidity control.
 

Conclusion

The repo rate is more than just a monetary policy term—it's a key financial indicator that affects everything from your home loan EMI to your investment returns. Set by the Reserve Bank of India, the repo rate helps manage inflation, control liquidity, and drive economic growth. Whether it's a repo rate cut to boost spending or a hike to curb inflation, every change has ripple effects across the economy.

Understanding the repo rate, along with related terms like reverse repo, bank rate and repo rate, and repo linked lending rate, allows individuals and businesses to make smarter financial decisions. Keeping an eye on the current repo rate helps you stay prepared for changes in loan interest rates, savings returns, and overall economic trends.

In a constantly evolving market, being aware of changes in repo rate is essential for financial planning. Stay informed, stay ahead, and make your money work smarter for you.