Repo Rate and Reverse Repo Rate – Key Differences and Impact on Home Loans 2026

Repo rate and reverse repo rate are the RBI's primary tools for managing liquidity, inflation, and economic growth, and they directly determine what you pay on your home loan EMI if you have a repo-linked floating rate loan. Understanding how these two rates work, and the 2025 rate-cutting cycle specifically, helps borrowers time their home loan decisions more strategically.

This page covers:

• What the repo rate is and how it controls inflation
• The 2025 repo rate cuts — 125 bps reduction explained
• Current repo rate in India
• What the reverse repo rate is
• Key differences between repo rate and reverse repo rate
• Impact of repo rate changes on home loans
• Impact on other financial products — personal loans, FDs, savings accounts

The repo rate, short for repurchase rate, is the rate at which the central bank of a country (such as the Reserve Bank of India) lends money to commercial banks. These loans are typically short-term, often overnight, and are secured by government securities. The central bank uses the repo rate as a tool to manage liquidity in the economy and control inflation.

• Control inflation: By increasing the repo rate, the central bank makes borrowing more expensive for commercial banks. This leads to higher interest rates for consumers and businesses, reducing spending and slowing down inflation.
• Encourage borrowing: Conversely, by lowering the repo rate, borrowing becomes cheaper, encouraging spending and investment, which can stimulate economic growth.

The repo rate, short for repurchase rate, is the rate at which the central bank of a country — the Reserve Bank of India — lends money to commercial banks. These loans are typically short-term, often overnight, and secured by government securities. The central bank uses the repo rate as a tool to manage liquidity in the economy and control inflation.

• Control inflation: Increasing the repo rate makes borrowing more expensive for commercial banks, leading to higher interest rates for consumers and businesses, reducing spending and slowing inflation.
• Encourage borrowing: Lowering the repo rate makes borrowing cheaper, encouraging spending and investment, which can stimulate economic growth.

In 2025, the RBI cut the repo rate by a total of 125 basis points across four consecutive policy meetings — two initial reductions of 25 bps each in February and April, a sharper 50 bps cut in June, and a final 25 bps reduction in December. This sustained easing cycle signals the RBI's strong intent to boost credit growth and economic activity by lowering borrowing costs.

Home loan borrowers on floating rates linked to the repo rate may benefit from reduced EMIs. However, borrowers on older benchmarks like MCLR (Marginal Cost of Funds-Based Lending Rate) respond more slowly to rate changes — transmission of rate cuts may be delayed or only partially passed on.

The current repo rate stands at 5.25%. On 5 December 2025, the RBI decided to lower the repo rate by 25 basis points, bringing it down from 5.50% to 5.25% during the Monetary Policy Committee (MPC) meeting — aimed at easing borrowing costs, improving liquidity, and supporting economic growth. This followed an earlier 50 bps cut on 6 June 2025, which itself completed a cumulative 100 bps reduction since February 2025.

The reverse repo rate is the interest rate at which the central bank borrows money from commercial banks — a tool to control excess liquidity and regulate inflation.

• Absorbing excess liquidity: When there is surplus money in the banking system, the central bank increases the reverse repo rate to encourage banks to deposit excess funds, reducing money supply.
• Ensuring financial stability: Managing liquidity through the reverse repo rate prevents excessive lending that could lead to inflationary pressures or asset bubbles.

As of the latest data, the RBI's reverse repo rate remains at 3.35% — the rate paid to commercial banks when they park excess funds with the RBI under the Liquidity Adjustment Facility (LAF).

The repo rate and reverse repo rate significantly impact interest rates on financial products, including home loan products. When the repo rate is high, banks face higher borrowing costs from the central bank, leading them to increase interest rates on loans to maintain profit margins. Conversely, when the repo rate is low, banks can offer lower interest rates, making borrowing cheaper for consumers.

During economic slowdowns, central banks may lower the repo rate to stimulate growth, leading to lower home loan interest rates and encouraging more real estate investment. Understanding these rates helps potential homebuyers time their home loan applications strategically.

With repo rate changes creating favourable borrowing conditions, now could be an opportune time to explore home financing options. Bajaj Finance offers competitive home loan rates starting from 7.25% p.a.* Check eligibility today.

• Personal loans: Interest rates are influenced by changes in the repo rate — a lower repo rate can result in lower personal loan interest rates, making borrowing more affordable.
• Fixed deposits: FD interest rates are also impacted — a higher repo rate can lead to higher FD interest rates, making them more attractive investments.
• Savings accounts: Interest rates may fluctuate based on repo rate changes, though the impact is generally less pronounced compared to loans and fixed deposits.

Understanding the intricacies of repo rate and reverse repo rate movements is crucial for anyone planning a home loan or managing existing floating-rate debt. Bajaj Finance offers home loans from 7.25% p.a.* with amounts up to Rs. 15 Crore* and tenures up to 32 years. Check your eligibility today.