What is Repo Rate?

The term Repo Rate refers to the rate at which the Reserve Bank of India (RBI) lends to commercial banks and financial institutions. It is a crucial policy tool used to control the country's financial system, and affects millions of borrowers. In this blog, we explore the functionality of the repo rate and its historical trends between the years 2010 and 2025. 

What is Repo Rate?

A mirror to the country's monetary policies, the repo rate is the interest rate at which the central bank of India (RBI) lends money to commercial banks when they face a shortage of funds. "Repo" stands for "Repurchasing Option" or "Repurchase Agreement." When a bank is short of funds, it can borrow from the RBI by providing government securities as collateral. The bank promises to later buy back these securities at a set price. 

Think of it like a borrowing cost incurred by the banks. Modification of this rate by the RBI triggers a succession of changes to the rates offered by the banks to the customers, directly impacting monthly cash flow, loan EMIs and savings returns.  

India's current repo rate (August, 2025) 

At the RBI's Monetary Policy Committee (MPC) Meeting in August, RBI Governor Sanjay Malhotra announced that the committee unanimously decided to maintain the previously set Repo Rate of 5.50%. 

This was the first monetary policy under the new RBI Governor, and marked a continued Repo Rate since the last drop of 50 bps in June 2025. Since February, a cumulative 100 basis points cut has been rolling out over the economy; maintaining the rate allows the cut to take effect entirely. 

Inflation forecasts for FY26 were lowered from 3.7% to 3.1%, but the steady Repo Rate shows caution from the RBI. This is significant since the policy has come at a time of geopolitical tensions; India faces an additional 25% tariffs on Indian goods, imposed by US President Donald Trump, due to India’s continued purchase of crude oil from Russia. Such trade pressures could influence the RBI’s future decisions, as they may impact inflation trends and overall economic growth. 

Importance of Repo Rate 

The Repo Rate acts as a crucial factor in managing money supply and inflation in the economy. The RBI uses it as a liquidity management tool, revising it based on the economic situation to maintain stability and achieve monetary policy objectives. 

For instance, the RBI increases the Repo Rate when they need to control prices. This makes borrowing expensive for banks, which typically translates to higher lending rates for customers. In turn, this reduces the money supply in the market and helps control inflation.  

On the other hand, when the Repo Rate is reduced, banks can borrow at a cheaper rate from the RBI, leading to lower lending rates for consumers and businesses. This improves economic growth by encouraging borrowing and investment. 

The Repo Rate influences the Rupee's value against foreign currencies like the Dollar, affecting foreign investment flows. It acts as a benchmark for various financial instruments, including bonds, deposits, and loan pricing. 

Also read - What Are Interest-free Loans: Key Benefits and Features 

Historical Repo Rate Trends (2010 to 2025) 

To start with, here's an overview of the repo rate changes over the course of 15 years: 

Date	RBI Repo Rate
6th June, 2025	5.50%
9th April, 2025	6%
7th February, 2025	6.25%
8th June, 2024	6.50%
5th April, 2024	6.50%
8th February, 2024	6.50%
8th December, 2023	6.50%
10th August, 2023	6.50%
8th February, 2023	6.50%
7th December, 2022	6.25%
30th September, 2022	5.90%
5th August, 2022	5.40%
8th June, 2022	4.90%
4th May, 2022	4.40%
8th April, 2022	4.00%
10th February, 2022	4.00%
8th December, 2021	4.00%
9th October, 2021	4.00%
6th August, 2021	4.00%
4th June, 2021	4.00%
7th April, 2021	4.00%
5th February, 2021	4.00%
4th December, 2020	4.00%
9th October, 2020	4.00%
6th August, 2020	4.00%
22nd May, 2020	4.00%
27th March, 2020	4.40%
6th February, 2020	5.15%
5th December, 2019	5.15%
4th October, 2019	5.15%
7th August, 2019	5.40%
6th June, 2019	5.75%
4th April, 2019	6.00%
7th February, 2019	6.25%
1st August, 2018	6.50%
6th June, 2018	6.25%
7th February, 2018	6.00%
2nd August, 2017	6.00%
4th October, 2016	6.25%
5th April, 2016	6.50%
29th September, 2015	6.75%
2nd June, 2015	7.25%
4th March, 2015	7.50%
15th January, 2015	7.75%
28th January, 2014	8.00%
29th October, 2013	7.75%
20th September, 2013	7.50%
3rd May, 2013	7.25%
17th March, 2011	6.75%
25th January, 2011	6.50%
2nd November, 2010	6.25%
16th September, 2010	6.00%
27th July, 2010	5.75%
2nd July, 2010	5.50%
20th April, 2010	5.25%
19th March, 2010	5.00%

Data Overview 

Now, let's look at an analysis of India's Repo Rate journey in this period of 15 years: 

• 2010 to 2015  

At this point, the world was still reeling from the global financial crisis of 2008, and India continued to face challenges of high inflation. This was marked by steadily rising repo rates that peaked at 8% in January 2014. The RBI stayed in the tightening policy phase for another year, fighting against rising inflation, leaving the repo rate at 7.25% in June 2015. 

• 2016 to 2019 

The RBI was now able to cut the policy rates as inflation started to come down, ensuring it remained accommodative to curb a concern over slow economic growth. The repo rate dropped to around 6.5% in 2016, staying in the region till 2018. The drops continued, with the RBI slashing points to boost domestic demand and investment. This brought the mark to 5.15% in October 2019. 

• 2020 to 2022 

The Repo Rate till 2022 was sitting consistent at 5.15%. February 2020 saw the global onset of the pandemic,which resulted in aggressive policy easing measures. Come May 2020, it fell sharply to 4% and remained unchanged up until mid-2022. 

• 2023 to 2024 

Thus far consistent at 4% up till 2022, the repo rate showed gradual increases to hit a high of 6.5% in August 2023, reflecting a rise in inflation metrics. The rate remained consistent up until June 2024; the metrics had begun to show signs of moderation, and the rate was revised accordingly. 

• 2025 (current) 

In 2025, the RBI altered the repo rate three times as part of a carefully calibrated easing cycle. It began in February 2025, when the rate was reduced to 6.25% to support economic momentum amid moderating inflation. A second cut came in April 2025, taking it further down to 6%, as the RBI assessed that inflation was staying within its comfort zone while growth indicators showed signs of slowing. 

The most recent change occurred in June 2025, with a sharper 50 bps reduction to 5.50% that surprised markets. It was significantly larger than the anticipated 25 bps drop, marking the first such aggressive move since the pandemic-era cuts in 2020. August 2025 shows a strategic pause in changes, allowing for uninterrupted monetary transmission; it reflects the RBI's confidence in controlling inflation while supporting economic growth. 

Also read - Everything You Need to Know About Relinquishment Deeds in India 

How Does the Repo Rate Impact You? 

The influence of the Repo Rate goes far beyond the confines of banking sector; it can also impact your finances in several ways. The following are some impacts: 

Loan Interest Rates 

When the Repo Rate decreases, banks usually lower their lending rates on Home Loans, Personal Loans, and Business Loans. This means borrowing is cheaper and can significantly lowers your EMI burden over time. But, if the repo rate increases, it can lead to higher borrowing costs, particulary harmful for long-term loans. 

For example, on a ₹3 Lakh Personal Loan for 4 years: 

At 6.25% (Feb 2025), the EMI would be around ₹7,092. 

At 5.50% (current), the EMI is about ₹7,033. This equates to monthly savings of ₹59, which adds up to roughly ₹2,832 over the entire loan period. 

Deposit Returns 

Fixed deposit rates and savings account interest rates generally move in sync with the Repo Rate. So, lower rates mean lower returns on your deposits, while higher rates can boost your savings income.  

For instance, at the current 5.5% Repo Rate: a 2-year fixed deposit of ₹5 Lakh at 7% interest earns ₹35,000 in annual interest. 

If the repo rate were to rise by 25 bps and banks increased FD rates to 7.25%, the same deposit would earn ₹36,250 annually. That’s an extra ₹1,250 per year without taking any additional risk! 

Investment Decisions 

Fluctuations in the Repo Rate have an inverse relationship with the price of bonds. When rates are decreased, existing bonds with higher interest rates become more valuable. The money in the market stimulates growth and investment which pushes the stock market to react positively. 

Economic Growth 

The lower the rates, the more it stimulates activity in the economy due to the ease of access of capital for businesses and people. This can create jobs, increased spending from consumers, and growth in the economy. 

Quicker Benefit Transmission 

In 2019, the RBI mandated that all new floating-rate retail loans be linked to an External Benchmark Lending Rate (EBLR), such as the Repo Rate. This replaced the earlier Marginal Cost of Funds-based Lending Rate (MCLR) system, where rate changes took longer to pass on to customers. 

Under the EBLR framework, banks are required to adjust lending rates within a defined reset period. Typically, EBLR loans reset at least once every quarter; thanks to this, any changes in the repo rate, whether cuts or hikes, will reach borrowers much more quickly and transparently. As a borrower, you have the choice to convert MCLR loans to EBLR loans to make sure you benefit from these changes. 

Current Impact 

With the Repo Rate currently at 5.50%, borrowers can expect loan rates to remain competitive as banks continue to pass through the earlier cuts from June. This is likely to keep borrowing costs in check for the next few months, especially for floating-rate loans linked directly to the repo rate. 

To Conclude 

The repo rate remains one of the most powerful monetary policy tools in India's economy. Its journey from higher rates of over 7% to the current rate of 5.50% shows the RBI's adaptive approach to changing economic conditions.  

As India continues to navigate global economic uncertainties while maintaining domestic growth, the repo rate will remain a critical factor in the financial landscape for years to come. 

Frequently Asked Questions 

What is Reversed Repo Rate? 

The Reverse Repo Rate is the opposite of the Repo Rate; it's the interest rate at which the Reserve Bank of India (RBI) borrows money from commercial banks. These transactions are typically backed by government bonds, which serve as collateral when the RBI absorbs excess liquidity from the banking system. 

What is the difference between Reverse Repo Rate and Repo Rate? 

The main difference between Reverse Repo Rate and Repo Rate is as follows: 

• Repo rate is when RBI lends to banks, but reverse repo rate is when RBI borrows from banks 

• Repo rate injects liquidity into the banking system, and reverse repo rate absorbs excess liquidity 

What are the effects of a change in repo rate? 

When the repo rate rises, the cost of borrowing increases. On the other hand, when the RBI lowers the repo rate, borrowing becomes easier for financial institutions, which then lower their lending rates. This encourages spending, investment, and overall economic activities which, in turn, drives economic growth. 

How often does the RBI change the repo rate? 

The RBI's Monetary Policy Committee (MPC) meets six times a year (bi-monthly) to review and decide on repo rate changes. However, rate changes don't happen at every meeting; they depend on economic conditions, inflation trends, and growth requirements. 

How do repo rate changes influence Fixed Deposit (FD) interest rates? 

With repo rate hikes, borrowing costs increase, and financial institutions look to attract deposits by offering more competitive FD rates. This benefits conservative investors seeking safe returns. Savers often respond by shifting money from low-interest accounts or volatile assets into FDs to lock in attractive rates. 

What risks should investors be aware of in a prolonged low Repo Rate environment? 

In a prolonged low Repo Rate environment, investors face risks like reduced returns on fixed-income investments, as interest rates remain low. Equity markets may have asset bubbles because more people want risky assets. Borrowing becomes cheaper, so overleveraging can be a problem. Additionally, inflation risk rises over time, potentially eroding the value of certain investments. 

What were the key takeaways of the RBI's MPC Meeting in August 2025? 

Here are the key takeaways of our current policy, as reported by The Economic Times: 

• Repo Rate: no change (remains at 5.5%, with a 'neutral' policy stance) 

• Standing Deposit Facility (SDF): 5.25% 

• Marginal Standing Facility (MSF) and Bank Rate: 5.75%. 

• GDP growth projections (2025-26): 6.5% 

• Real GDP growth projections (Q1 FY27): 6.6% 

• CPI inflation projection (Q1 FY27): 4.9% 

• CPI inflation for 2025: 3.1% 

How quickly are repo rate changes passed on to borrowers under EBLR? 

Under the EBLR system, banks must revise loan rates within the reset period agreed in the loan terms, usually monthly, quarterly, or half-yearly. In 2025, most major Indian banks are following a quarterly reset cycle for personal loans, meaning a Repo Rate cut today will reflect in EMIs from the next quarter. 

What is EBLR and why was it introduced?

EBLR stands for External Benchmark Lending Rate. In 2019, the RBI implemented that all new floating-rate retail and MSME loans were to be linked to an external benchmark, such as repo rate. This was aimed at making rate changes faster and more transparent compared to the older MCLR system. 

Does EBLR make loan rates more volatile?  

Yes, rates can change more frequently compared to the MCLR era. While this benefits borrowers in a falling rate scenario, it also means EMIs can increase faster when the repo rate is hiked.