Repo rate
The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends short-term money to banks. It is the RBI's main policy rate. When it changes, borrowing can become costlier or cheaper across the economy, and that can reach your loans, your deposits and the markets.
What the repo rate is
Banks sometimes need cash for a short time. They can borrow it from the RBI by selling it government securities and agreeing to buy them back later. The rate they pay for that borrowing is the repo rate. The word repo comes from repurchase.
The reverse repo is the opposite arrangement, where the RBI borrows from banks. It pays a lower rate, and the RBI uses both to steer how much cash is in the banking system.
Who sets it and why
A committee of the RBI, the Monetary Policy Committee, reviews the rate several times a year. Its main job is to keep inflation within a target range. When prices are rising too fast, the RBI tends to raise the rate to cool demand. When growth is weak and inflation is calm, it may lower the rate to encourage borrowing.
How it can reach you
Banks pass changes on, but not always immediately or fully. Many floating-rate loans, including some home loans, are linked to the repo rate, so their interest can move when it does. Deposit rates tend to follow in time. Bond prices and share prices also react, because a higher rate makes borrowing and company financing costlier.
A rate change is one influence among many. It does not by itself tell you where a market will go next.
Where to find the current rate
The rate changes only when the RBI announces it. Check the RBI's own announcement for the current figure, not a number remembered from an earlier news story.
A rate hike and a loan (hypothetical numbers)
Suppose the repo rate rises by 0.25 percentage points. A loan linked to it, with ₹30 lakh outstanding, could cost about ₹7,500 more in interest over a year (0.25 percent of ₹30 lakh), either through a higher monthly payment or a longer loan. The exact effect depends on how your lender links the loan and when it resets the rate.
Common questions
- What is the repo rate in simple words?
- The rate at which the RBI lends short-term money to banks.
- What happens when the repo rate goes up?
- Borrowing tends to become costlier, which can raise interest on rate-linked loans and cool demand and inflation.
- Who decides the repo rate?
- The RBI's Monetary Policy Committee, which reviews it several times a year.
- What is the difference between repo and reverse repo?
- In a repo the RBI lends to banks. In a reverse repo the RBI borrows from banks.