What is the repo rate?
The repo rate refers to the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks for their short-term needs. As of January 2026, the current repo rate is 5.25%, which acts as a master switch that controls how expensive or cheap your bank loans will be.
What is the meaning of repo rate?
The word “repo” is short for “repurchase agreement.” It is a simple deal where your bank sells government bonds to the RBI to get quick cash, with a promise to buy them back later at a slightly higher price. The extra money the bank pays back is essentially the interest, which we call the repo rate.
Think of it like a pawn shop for banks. When a bank like SBI or HDFC runs low on daily cash, they “pawn” their government securities to the RBI. They get the money they need to keep functioning and then “buy back” their securities after a few days. This process ensures that banks always have enough cash to let you withdraw money or take out a small loan.
As per current guidelines, this rate is the most important tool the RBI uses to keep the Indian economy stable. If there is too much money in the market and prices are rising too fast, the RBI makes borrowing expensive. If the economy needs a boost, they make borrowing cheaper. It is a delicate balance that affects everyone from a street vendor to a CEO.
Who sets the repo rate in India?
The Monetary Policy Committee (MPC) of the Reserve Bank of India is the group of experts that decides the repo rate. This committee has six members: three from the RBI and three independent experts chosen by the government to ensure the decision is fair and balanced for the whole country.
The person who sets the repo rate in India is always the MPC, which was formed to make the process transparent. They meet at least four times a year, though they usually meet every two months. During these meetings, they study everything from the price of onions and petrol to how many cars are being sold.
Each member gets one vote. If there is a tie, the RBI Governor has a “casting vote” to make the final call. Their main job is to keep inflation around 4% (with a 2% margin). After every meeting, the governor holds a press meeting to explain why they changed the rate or kept it the same. You can always check the official RBI website to see the latest “Minutes of the Meeting” to understand their logic.
How does the repo rate affect loans and EMIs?
How the repo rate affects loans is very straightforward: when the RBI cuts the repo rate, it becomes cheaper for your bank to get money, so they usually lower the interest on your home or car loan. If the RBI raises the rate, your bank’s costs go up, and they pass that cost to you through higher EMIs.
For most of us in India, our loans are now linked to the Repo-Linked Lending Rate (RLLR). This is a great thing because it means when the RBI makes a move, your bank should ideally change your rate within a few weeks.
- If the rate drops: Your EMI goes down, or your loan ends a few months earlier.
- If the rate rises, your monthly payment increases, which can pinch your monthly budget.
For example, if you have a Rs. 40 lakh home loan, a small 0.25% cut in the repo rate can save you about Rs. 700 to Rs. 1,000 every single month. Over 20 years, that adds up to lakhs of rupees! Users should verify their loan type with their bank. If you are on an old “MCLR” or “Base Rate” system, you might not see the benefit of a rate cut as quickly as those on the new RLLR system.
What is the difference between repo rate and reverse repo rate?
The difference between repo rate and reverse repo rate is simply the direction in which the money is moving: repo rate is what banks pay to borrow from the RBI, while reverse repo is what the RBI pays to borrow from the banks.
|
Meaning |
Banks borrow from RBI |
RBI borrows from banks |
|
Current Rate |
5.25% (Higher) |
3.35% (Lower) |
|
Purpose |
Injects money into the market |
Sucks out extra money from the market. |
|
Your Loans |
Affects your EMI directly |
Affects how much banks want to lend |
Think of the reverse repo rate as a “savings account” for banks. If the RBI offers a high reverse repo rate, banks would rather keep their money safely with the RBI than risk lending it to people. In 2026, the RBI keeps the reverse repo rate lower to encourage banks to give more loans to the public and businesses instead of just sitting on the cash.
How often does RBI change the repo rate?
The RBI reviews the repo rate every two months during its bi-monthly policy meetings. However, how often RBI changes the repo rate depends entirely on the health of the Indian economy; they don’t change it just for the sake of it.
Usually, there are six scheduled meetings in a year—February, April, June, August, October, and December. But if there is a big global crisis or a sudden spike in prices, the RBI can call an “emergency meeting” and change the rates overnight. We saw this during the pandemic when rates were slashed to record lows to help people survive the lockdown.
In 2025 and early 2026, the RBI has been very active. They kept rates high for a long time to control inflation, but as prices of daily goods started to settle, they began cutting the rates. The current 5.25% rate is a result of these recent meetings. It shows that the RBI is now confident enough to let people borrow and spend more to help India’s GDP grow faster.
How can borrowers benefit from a lower repo rate?
The biggest benefits of a lower repo rate are more money in your pocket and easier access to credit. When the repo rate is low, banks compete to give you the best deals, which means you can finally buy that new car or move into your dream home without feeling the heavy burden of interest.
- Lower EMIs: You pay less to the bank every month.
- Higher Loan Eligibility: Since the EMI is lower, the bank might give you a bigger loan for the same salary.
- Cheaper Business Loans: If you run a small shop or a startup, your “working capital” loans become cheaper.
- Balance Transfers: You can move your existing high-interest loan from one bank to another that offers the new, lower rate.
If you have a loan from 2023 when rates were high (around 6.5%), you should talk to your bank today. Many people don’t realize they can ask for a “rate reset” or switch to another lender to save money. Even a 0.5% difference can save you enough money to pay for your child’s yearly school fees or a nice family vacation.
How can borrowers benefit from a lower repo rate?
The biggest benefits of a lower repo rate are more money in your pocket and easier access to credit. When the repo rate is low, banks compete to give you the best deals, which means you can finally buy that new car or move into your dream home without feeling the heavy burden of interest.
- Lower EMIs: You pay less to the bank every month.
- Higher Loan Eligibility: Since the EMI is lower, the bank might give you a bigger loan for the same salary.
- Cheaper Business Loans: If you run a small shop or a startup, your “working capital” loans become cheaper.
- Balance Transfers: You can move your existing high-interest loan from one bank to another that offers the new, lower rate.
If you have a loan from 2023 when rates were high (around 6.5%), you should talk to your bank today. Many people don’t realize they can ask for a “rate reset” or switch to another lender to save money. Even a 0.5% difference can save you enough money to pay for your child’s yearly school fees or a nice family vacation.
Does a lower repo rate have any downsides?
While a lower repo rate is a dream for someone with a loan, it can be a bit of a nightmare for people who rely on Fixed Deposits (FDs). When the RBI cuts the repo rate, banks also cut the interest they pay on savings accounts and FDs.
- Senior Citizens: They often depend on monthly FD interest. A lower repo rate means their monthly income drops.
- Conservative Savers: If you prefer safe bank deposits over the stock market, your money grows more slowly when repo rates are low.
In 2026, with the repo rate at 5.25%, bank FD rates are hovering around 6% to 7%. This is why many Indian families are now moving their money into mutual funds or the stock market to get better returns. If you are a saver, it is a good idea to lock in your FDs for a longer period before the rates drop even further.
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