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Repo Rate

General

Repurchase Agreement Rate

The rate at which the Reserve Bank of India lends money to commercial banks. When the RBI raises the repo rate, borrowing becomes costlier, which increases loan interest rates across the economy.

Definition

The repo rate (short for Repurchase Agreement Rate) is the key policy interest rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks. Banks borrow from the RBI against government securities as collateral, with an agreement to repurchase them at a later date.

The repo rate is the RBI's primary monetary policy tool. By raising or lowering the repo rate, the RBI influences the cost of money across the entire economy — affecting everything from your home loan EMI to the interest rate on your fixed deposit.

The Monetary Policy Committee (MPC) meets every two months to review and set the repo rate based on inflation targets, GDP growth, and global economic conditions.

Formula

The repo rate itself is set by the MPC — there is no formula to calculate it. However, its impact on loan rates follows:

Floating Loan Rate (EBLR) = Repo Rate + Credit Risk Premium + Operational Costs

Impact on EMI: A change of 0.25% (25 basis points) in the repo rate on a ₹50 lakh home loan at 20 years tenure changes the EMI by approximately ₹800–₹1,000/month.

Use the home loan EMI calculator to see exactly how rate changes affect your EMI.

Worked Example

The RBI raises the repo rate from 6.25% to 6.50% (+25 bps) due to rising inflation.

You have a ₹40 lakh home loan on EBLR with a 15-year tenure. Your current rate: 8.75%.

After the rate hike:

  • New interest rate = 8.75% + 0.25% = 9.00%
  • Old EMI (8.75%, 15 yr, ₹40L) ≈ ₹39,800/month
  • New EMI (9.00%, 15 yr, ₹40L) ≈ ₹40,600/month
  • EMI increase = ₹800/month (₹9,600/year)

Total additional interest over 15 years ≈ ₹1.2 lakh.

Key Things to Know

  • MCLR vs EBLR: Older home loans (pre-October 2019) are on MCLR, which responds to repo rate changes slowly. New loans are on EBLR and respond almost immediately — within the same quarter. If you are on MCLR, consider switching to EBLR when rates are falling.
  • FD rates and repo rate: When the RBI raises the repo rate, banks also increase FD rates to attract deposits. If rates are rising, consider shorter-tenure FDs so you can reinvest at higher rates later. When rates are falling, lock in long-tenure FDs early.
  • Inflation and repo rate: The RBI targets CPI inflation at 4% (with a band of 2–6%). When inflation exceeds the upper band, the RBI raises the repo rate. When inflation is comfortably within the band and growth is weak, the RBI cuts rates.
  • Liquidity tools: The repo rate is supported by the Standing Deposit Facility (SDF, at which banks park excess funds with the RBI) and the Marginal Standing Facility (MSF, the emergency overnight rate). The corridor between SDF and MSF brackets the repo rate.
  • Global context: The RBI does not set the repo rate in isolation — US Federal Reserve rate decisions significantly influence RBI policy, as rate differentials affect capital flows and currency exchange rates.

Related Calculators

Home Loan EMI Calculator →Calculate your home loan EMI, total interest, and amortisation schedule instantly. Built for Indian borrowers — results in seconds.
Fixed Deposit Calculator →Calculate your FD maturity amount, total interest, and payout schedule instantly. Supports monthly, quarterly, and cumulative interest options for Indian bank FDs.
Personal Loan EMI Calculator →Calculate your personal loan EMI, total interest, and repayment schedule instantly. Covers all unsecured personal loans in India.

Related Terms

EMIEquated Monthly InstalmentAPRAnnual Percentage RateInflationConsumer Price InflationFDFixed Deposit
Frequently Asked Questions
What is the current repo rate in India?
The RBI sets the repo rate at its bi-monthly Monetary Policy Committee (MPC) meetings. As of June 2025, the repo rate is 6.25% (it was reduced by 25 basis points in February 2025 and again in April 2025). Always check the RBI website for the latest rate as it changes with economic conditions.
How does the repo rate affect home loan EMIs?
Home loans on floating rates (EBLR/MCLR) are directly linked to the repo rate. When the RBI raises the repo rate, banks raise their lending rates within weeks, increasing the interest component of your EMI. A 0.25% rate hike on a ₹50 lakh home loan over 20 years increases the EMI by approximately ₹800–₹900 per month.
What is the difference between repo rate and reverse repo rate?
The repo rate is the rate at which the RBI lends to commercial banks (banks borrow from RBI). The reverse repo rate is the rate at which the RBI borrows from commercial banks (banks lend to RBI). The reverse repo rate is typically 25 basis points lower than the repo rate. The RBI uses both to manage liquidity in the banking system.
Why does the RBI change the repo rate?
The RBI changes the repo rate primarily to control inflation and manage economic growth. When inflation is high, the RBI raises the repo rate to make borrowing more expensive, reducing money supply and consumer spending. When the economy needs stimulus, the RBI cuts the repo rate to encourage borrowing and investment.
What is EBLR and how is it linked to the repo rate?
External Benchmark Linked Rate (EBLR) is a lending rate mandated by RBI since 2019 for home loans, car loans, and MSME loans. Banks must link EBLR directly to an external benchmark — most banks use the repo rate. EBLR = Repo Rate + Spread. When the repo rate changes, EBLR-linked loan rates change within the same quarter.