Repo Rate

The Repo Rate is the interest rate at which the Reserve Bank of India (RBI) loans money to commercial banks.

Repo Rate full form is Repurchase Agreement or Repurchasing Option. Banks obtain loans from the Reserve Bank of India (RBI) by selling qualifying securities.

The central bank or RBI and the commercial bank would reach an agreement to repurchase the securities at a set price. When banks are short on funds or need to maintain liquidity under volatile market conditions, this is done. The repo rate is utilised by the RBI to manage inflation.

How Does Repo Rate Work?

As previously stated, the repo rate is utilised by the Indian central bank to restrict the flow of money in the market. When the market is impacted by inflation, the RBI raises the repo rate.

An increased repo rate means that banks borrowing money from the central bank during this period will have to pay more interest. This inhibits banks from borrowing money, reducing the amount of money in the market and helping to negate inflation. In the event of a recession, the RBI repo rates are also reduced.

Current Repo Rate in India

The current Repo rate in India is 5.50%. On August 6, 2025, the Reserve Bank of India (RBI) reduced the repo rate by 50 basis points to 5.50% from the earlier 6% in the Monetary Policy Committee (MPC) meeting.

Reserve Bank of India Repo Rate

These are the latest Repo Rate and Reverse Repo Rate-

Historical Repo Rates from 2025 to 2010

Following is the list of the historical Repo Rates in India -

Calculation of Repo Rate by the Reserve Bank of India

The RBI regulates the repo rate based on the economic situation, as described in the previous paragraph. The central bank determines interest rates based on inflation or recession in the country's market.

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What is Affected by a Change in Repo Rate?

The repo rate is an influential component that affects various segments of the economy.

A slight change in it can directly impact EMIs and rates of interest on various types of loans like Personal Loans, Car Loans, Business Loans, Home Loans, etc.

It is also likely to have a crucial impact on other finance-centric elements such as fixed deposits, mutual funds, savings accounts, etc.

What is Reverse Repo Rate?

As the name implies, reverse repo is the inverse contract to the repo rate. The reverse repo rate is the rate at which the RBI borrows funds from the country's commercial banks.

It is the rate where the commercial banks in India park excess funds with the Reserve Bank of India, typically for a short period of time.

Difference Between Repo Rate and Reverse Repo Rate

Central banks and other financial institutions use repo rates and reverse repo rates to manage their daily short-term liquidity. The repo rate is the interest rate at which commercial banks take or borrow money from the Reserve Bank of India. The RBI loans money to commercial banks in exchange for any government securities.

The reverse repo rate is the rate on commercial banks' deposits with the central bank. Most banking organizations choose this safer strategy to secure their funds in the event of a surplus. In other terms, the reverse repo rate is an interest rate paid on cash deposited.

The key distinction between the repo and reverse repo rates is that the repo rate earns income through lending to commercial banks, whereas the reverse repo rate earns interest on funds deposited with the Reserve Bank of India.

The reverse repo rate is utilized to control the economy's liquidity, while the repo rate is utilized to control inflation. The reverse repo rate is always kept lower than the repo rate by central banks.

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