What is Repo rate? Meaning, importance and how it works

What is Repo rate? Meaning, importance and how it works

The Reserve Bank of India (RBI) repo rate is currently 5.50%, the rate at which the RBI lends funds to banks against eligible collateral. Changes in the repo rate can influence borrowing costs, loan interest rates and deposit rates over time.
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In summary


The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends short-term funds to banks against eligible securities. It is an important monetary policy tool that influences borrowing conditions and inflation.


  • Current repo rate: The RBI increased the repo rate by 25 basis points, from 5.25% to 5.50%, effective 7 October 2026.
  • Other policy rates: The Standing Deposit Facility (SDF) rate is 5.25%, while the Marginal Standing Facility (MSF) rate and Bank Rate are 5.75%.
  • Impact on interest rates: Changes in the repo rate can influence lending and deposit rates over time. The actual impact depends on how financial institutions adjust their rates.
  • Personal loans: A repo-rate change does not automatically change every personal loan EMI. The effect depends on the loan's interest rate structure and applicable terms.
  • Inflation control: The RBI uses the repo rate as one of its monetary policy tools to influence borrowing, spending and economic activity, with the aim of maintaining price stability.

The RBI's Monetary Policy Committee decides the repo rate. Check the latest RBI announcements and review the applicable loan or deposit terms before making financial decisions.

What is repo rate?

The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks against eligible securities. It is a key monetary policy tool used by the RBI to influence liquidity, borrowing costs and inflation in the economy.


When the RBI increases the repo rate, borrowing funds can become more expensive for banks. Banks may then increase lending rates, which can raise borrowing costs for customers. Conversely, a reduction in the repo rate can lower banks’ funding costs and may lead to lower lending rates, depending on how banks transmit the change.


Changes in the repo rate can therefore influence personal loans, home loans, business loans and other forms of borrowing. They can also affect deposit rates and the returns available on certain savings and investment products, although the impact and timing vary by financial institution and product.

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How does the repo rate work?

The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks against government securities. By increasing or decreasing the repo rate, the RBI influences liquidity, borrowing costs, and overall economic activity.


  1. The RBI reviews economic conditions such as inflation, growth, and liquidity before deciding whether to change the repo rate.
  2. When the repo rate increases, borrowing from the RBI becomes more expensive for banks, which may lead to higher lending rates for customers. When the repo rate decreases, banks may borrow at a lower cost and reduce lending rates.
  3. Banks use this borrowed money to meet short-term funding requirements and maintain liquidity.
  4. The repo rate affects interest rates on loans and deposits, influencing the cost of borrowing and the returns on savings.

Changes in the repo rate can affect loan EMIs, personal loan interest rates, and savings returns, depending on how banks revise their lending and deposit rates.

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What is the current repo rate in India?

As of October 2026, the RBI policy repo rate is 5.50%. On 7 October 2026, the Monetary Policy Committee raised it by 25 basis points from 5.25%. The Standing Deposit Facility rate is 5.25%, while the Marginal Standing Facility and Bank Rate are 5.75%.


The repo rate is the rate at which the RBI provides short-term funds to eligible banks against eligible securities. Changes to this rate can influence borrowing conditions and lending rates, but the impact on a loan’s interest rate or EMI depends on its terms and applicable benchmark.

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Reserve Bank of India repo rate

The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends short-term funds to banks against eligible securities. It influences borrowing costs, credit availability and the flow of money through the economy. The RBI also uses this rate as a tool to manage inflation and support price stability. In October 2026, the RBI increased the repo rate by 25 basis points to 5.50%, effective 7 October 2026.


Monetary policy rateRate as of October 2026
RBI policy repo rate5.50%
Fixed reverse repo rate3.35%
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Historical repo rates from 2010 to 2026

The table below shows the lowest and highest repo rates recorded in each calendar year, based on the Reserve Bank of India’s rate-change timeline. The 2026 figures reflect changes up to October 2026.

YearRepo rate (%)
20265.25–5.50
20255.25–6.50
20246.50
20236.25–6.50
20224.00–6.25
20214.00
20204.00–5.15
20195.15–6.50
20186.00–6.50
20176.00–6.25
20166.25–6.75
20156.75–8.00
20147.75–8.00
20137.25–8.00
20128.00–8.50
20116.25–8.50
20104.75–6.25

Important: The ranges represent the minimum and maximum rates in effect during each calendar year, not just the year-end rate. In 2026, the repo rate increased from 5.25% to 5.50% on 7 October.


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Why is the repo rate important?

The repo rate plays a big role in how money moves in the economy. Here’s why it matters:

1. It affects loan interest rates

If the repo rate increases, borrowing becomes costlier for banks—and for you. Loan EMIs can go up. If it drops, loans may get cheaper.

2. It helps control inflation

When inflation is high, the RBI raises the repo rate to make borrowing expensive. This slows down spending. When inflation is low, the RBI can lower the rate to boost demand.

3. It supports economic growth

Lower repo rates make loans more affordable, which helps businesses grow and encourages people to spend more—giving the economy a push.

4. It impacts investments and savings

Changes in the repo rate also affect returns on savings and investments. So staying updated helps you make better financial decisions.

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How often does the RBI review the repo rate?

The repo rate is typically reviewed six times each year, with the Reserve Bank of India's Monetary Policy Committee (MPC) holding policy meetings at intervals of about two months (approximately every eight weeks). During these meetings, the committee evaluates inflation, economic conditions, liquidity, and growth trends before deciding whether to increase, reduce, or keep the repo rate unchanged. The RBI publishes its monetary policy decision after every scheduled meeting.

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How does RBI calculate repo rate?

The RBI calculates the repo rate based on several economic factors to control inflation and support economic growth. Key considerations include:

  1. Inflation trends: High inflation generally prompts the RBI to increase the repo rate, while low inflation may lead to a reduction.
  2. Economic growth: The repo rate is adjusted to balance economic growth with inflation control, ensuring stability.
  3. Liquidity and banking needs: The demand for loans and the money supply influence repo rate adjustments.
  4. External economic influences: Global factors like commodity prices and international market fluctuations also impact the decision.

The RBI evaluates these factors during its regular monetary policy reviews to determine the most appropriate rate.

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What is reverse repo rate?

The reverse repo rate is the interest rate at which the RBI borrows money from commercial banks, usually by offering government securities in return.


When banks have extra money lying around, they can lend it to the RBI and earn interest at this rate. This gives banks a safe option to park their surplus funds instead of giving out more loans.


By doing this, the RBI can reduce the amount of money flowing in the system, which helps keep inflation in check. In simple terms, the reverse repo rate helps the RBI manage how much cash is available in the economy and keep things stable.

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What is the difference between repo rate and reverse repo rate?

The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends funds to commercial banks against government securities, helping manage inflation. The reverse repo rate is the interest paid by the RBI to banks on their surplus deposits, helping control liquidity in the economy. While the repo rate generates income by lending to banks, the reverse repo earns interest on deposits. The reverse repo rate is always lower than the repo rate.


Here is a summary of repo rate vs reverse repo rate:


AspectRepo rateReverse repo rate
RoleInjects liquidity into the economyAbsorbs excess liquidity
Who benefits?Banks borrowing funds from RBIBanks depositing surplus funds with RBI
Impact on lendingDirectly influences loan interest ratesIndirectly influences liquidity availability
Monetary
policy tool		Used mainly to control inflation and stimulate growthUsed mainly to control liquidity and stabilize money supply
Effect on money supplyIncreases money supply when rate is lowDecreases money supply by absorbing excess funds
Central bank incomeRBI earns interest by lending fundsRBI pays interest to banks on deposits
Economic effectHigher repo rate slows down economyHigher reverse repo rate encourages banks to save more
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What is affected by a change in repo rate?

A change in the repo rate can impact several key areas of the economy:

  1. Loan costs: Higher repo rate means costlier loans and EMIs; a lower rate makes borrowing cheaper.
  2. Inflation: Raising the rate helps control inflation; lowering it boosts spending.
  3. Investments: Low rates push money to stocks; high rates favour fixed deposits.
  4. Currency strength: A higher rate attracts foreign investment, strengthening the rupee.

These factors collectively shape the economic environment, influencing everything from individual borrowing costs to national growth rates.

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Impact of repo rate on consumers

Changes in the repo rate have a direct effect on consumers in several ways:

  1. Loan costs: A rise in the repo rate increases the interest rates on loans like home loans, personal loans, and car loans, making borrowing costlier for consumers. Conversely, a decrease in the repo rate lowers loan costs, encouraging borrowing and investment.
  2. Savings returns: When the repo rate increases, banks tend to offer higher interest rates on deposits, benefiting savers. Lower repo rates may reduce returns on savings.
  3. Inflation: The repo rate influences inflation; an increase typically helps control rising prices, while a reduction can increase demand, potentially leading to inflationary pressures.

In essence, consumers' borrowing and saving patterns are significantly influenced by fluctuations in the repo rate.

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What is the relationship between inflation and repo rate

The repo rate and inflation are closely linked.

  1. When inflation is high, the RBI increases the repo rate. This makes loans more expensive, so people borrow and spend less. As a result, inflation comes down.
  2. When inflation is low, the RBI lowers the repo rate. This makes loans cheaper, encouraging people to borrow and spend more—giving the economy a boost.

In short, the RBI uses the repo rate to keep inflation under control and maintain economic balance.

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How repo rate impacts personal loan EMI?

The repo rate primarily affects loans with floating interest rates, while personal loans are often offered at fixed rates. This means that existing personal loan borrowers may not feel the impact immediately after a repo rate change.


When the RBI increases the repo rate, banks and NBFCs face higher borrowing costs. To maintain profit margins, they usually raise personal loan interest rates, which increases EMIs for borrowers. Conversely, when the RBI lowers the repo rate, banks can borrow at lower costs and may offer personal loans at reduced interest rates, making EMIs more affordable.


It is important to note that repo rate changes do not affect personal loan EMIs immediately. Banks take some time to revise interest rates after the RBI announces a change. Borrowers should monitor repo rate movements and maintain a good credit score and repayment history to secure personal loans at better interest rates when rates are favourable.

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How repo rate affects economy?

The repo rate impacts the economy by influencing interest rates. A higher repo rate can lead to increased borrowing costs, slowing economic activity and inflation. Conversely, a lower repo rate stimulates borrowing, promoting spending and investment. Central banks use repo rate adjustments as a tool to achieve monetary policy objectives and economic stability.


  1. Controlling Inflation: When prices start rising too fast, the RBI raises the repo rate. This makes loans more expensive, so people and businesses tend to borrow and spend less, which helps slow down inflation.
  2. Boosting growth: On the other hand, when the economy needs a push, the RBI lowers the repo rate. Cheaper loans encourage businesses and individuals to borrow, invest, and spend more, giving the economy a much-needed boost
  3. Liquidity management: The repo rate helps the RBI control the availability of funds in the banking system. An increased repo rate reduces liquidity, while a lower rate increases it.
  4. Investment patterns: Lower repo rates can attract investors to equities and real estate as they seek higher returns, while higher rates can shift investments to safer, fixed-income options.
  5. Loan repayment costs: A high repo rate makes loans costlier, affecting EMIs on home, personal, and auto loans, which can impact household budgets and consumption.


The repo rate is an important tool the RBI uses to manage inflation, encourage investment, and support economic growth. By raising or lowering the repo rate, the RBI can either slow down or speed up economic activity as needed. Along with the reverse repo rate, it helps control the flow of money in the market, affecting loan interest rates and the overall health of the economy. Knowing how the repo rate works can help borrowers and investors make smarter choices about loans and investments.

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Frequently asked questions

Overview

Effects

Repo rate impact

What is repo rate full form?

Repo rate stands for Repurchase Rate. It is the interest rate at which the Reserve Bank of India (RBI) provides short-term funds to commercial banks against government securities.

Another name for repo rate is the "repurchase rate." It is the interest rate at which a central bank, like the Reserve Bank of India (RBI), lends money to commercial banks in exchange for government securities, with an agreement to repurchase those securities at a future date.

The bank rate is the interest rate at which the Reserve Bank of India (RBI) lends funds to banks without requiring government securities as collateral, typically for longer-term borrowing. In contrast, the repo rate is the rate at which the RBI provides short-term funds against government securities under a repurchase agreement. While both rates influence borrowing costs and monetary policy, the repo rate is used more frequently to manage liquidity in the banking system.

A variable repo rate refers to an auction-based system where the repo rate is not fixed but determined through bidding. Banks bid for funds, and the final rate is based on demand and supply, offering more flexibility than a fixed rate.

The repo rate and inflation are closely linked. When inflation rises, the RBI may increase the repo rate to reduce money supply and borrowing. Higher rates make loans costlier, slowing down spending and helping control inflation.

The repo rate influences loan interest rates. When the central bank raises the repo rate, banks may increase their lending rates to maintain profitability, making loans more expensive for consumers and businesses. Conversely, a lower repo rate can lead to reduced loan interest rates, stimulating borrowing and economic activity.

The repo rate is the rate at which the RBI lends money to banks, while an interest rate is charged by banks on loans and credit offered to customers.

The repo rate influences fixed deposit interest rates. When the central bank increases the repo rate, banks may raise fixed deposit rates to attract more deposits and offer better returns to investors. Conversely, a lower repo rate may reduce fixed deposit interest rates, affecting overall returns for depositors.

The repo rate affects the stock market by influencing borrowing costs and overall economic activity. When the Reserve Bank of India (RBI) increases the repo rate, borrowing may become more expensive for businesses, which can affect profits and investor sentiment. When the repo rate is reduced, lower borrowing costs may encourage business expansion and economic growth, which can have a positive impact on stock market performance.

It depends on your loan’s interest rate and benchmark. If your floating-rate loan is linked to the repo rate, a hike may increase your EMI or extend your repayment tenure when the rate resets. Fixed-rate loans generally remain unchanged.

The RBI increases or decreases the repo rate to manage inflation, liquidity, and economic growth. It may raise the repo rate to control rising inflation and reduce excess money in the economy, while a lower repo rate can encourage borrowing, spending, and investment during periods of slower economic growth.

There is no fixed reduction in EMI after a repo rate cut because the impact depends on your lender, loan type, outstanding balance, and repayment tenure. If your loan has a floating interest rate and your lender passes on the rate cut, your EMI or loan tenure may reduce.

As of October 2026, the Reserve Bank of India (RBI) repo rate stands at 5.50%. On 7 October 2026, the RBI increased the rate by 25 basis points (0.25 percentage points), from 5.25% to 5.50%.

An increase in the repo rate can raise banks’ borrowing costs, potentially leading to higher lending rates, increased EMIs, and greater borrowing costs for customers.

The RBI raised the repo rate by 25 basis points to 5.50% on 7 October 2026 to address rising inflation risks. The MPC cited elevated inflation expectations and strong growth in money and credit. Higher oil prices added pressure, while RBI operations were used to manage ample banking-system liquidity. 

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