What is the repo rate?
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The repo rate is the interest rate at which the RBI or the Reserve Bank of India lets commercial banks borrow money
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Both the repo rate and reverse repo rate are interest rates that play a very important role in the country’s economic health. Both these interest rates are essential tools that help central banks monitor liquidity and control inflation which leads to the stabilisation of the economy.
Of these two interest rates, the reverse repo rate, specifically, impacts citizens more, especially if they have taken a loan. With any changes to the reverse repo rate by a central bank, a consumer’s borrowing cost changes. This is why it is important to be aware of these two rates of interest as it helps the common man opt for a more affordable interest rate when they want to take a loan. Here is everything you need to know about these two rates of interest.
The repo rate is the interest rate at which the RBI or the Reserve Bank of India lets commercial banks borrow money. ‘Repo’ here is a shorter form of "Repurchase Agreement" as it involves a transaction of temporary nature between commerical banks and central banks. In this case, to borrow money from the RBI, financial institutions like commercial banks sell securities to the RBI while signing an agreement to buy these securities back at a later date at a predetermined price.
The current Repo Rate in India, fixed by RBI is 6.50% and remains unchanged |
The reverse repo rate applies when the case gets reversed. So, when the RBI needs to borrow funds from commercial banks, it is charged the reverse rate. The system in this case also works the same way, but in reverse. Here, the RBI pays the reverse repo rate to the commercial banks on the funds borrowed by selling them securities. After purchasing securities from commercial banks, the RBI sells them back at a later date and at a specified price.
The current Reverse Repo Rate in India, fixed by RBI, is 3.35% and remains unchanged |
The reverse repo rate helps the RBI absorb excess liquidity from the banking system. When inflation rises, the RBI may increase this rate to encourage banks to park more funds with the central bank. Banks earn interest on these deposits, making it a safer and more attractive option than lending in the market. As a result, banks have fewer funds to offer as loans to the public. This helps reduce spending and borrowing in the economy, which in turn eases inflationary pressure.
These are the latest Repo Rate and Reverse Repo Rates applicable in India:
Repo Rate Today | 6%[1] |
Reverse Repo Rate | 3.35%[2] |
Bank Rate | 6.50%[3] |
Marginal Standing Facility Rate | 6.25%[4] |
The RBI revises Repo Rates and Reverse Repo Rates in India from time to time. The following table offers a quick summary of the historical Repo Rates in India over the last 15 years:
Date Effective From | Repo Rate |
April 9th, 2025 | 6.00% |
February 7th, 2025 | 6.25% |
December 6th, 2024 | 6.50% |
October 9th, 2024 | 6.50% |
August 8th, 2024 | 6.50% |
June 7th, 2024 | 6.50% |
February 8th, 2024 | 6.50% |
December 8th, 2023 | 6.50% |
October 6th, 2023 | 6.50% |
August 10th, 2023 | 6.50% |
June 8th, 2023 | 6.50% |
April 6th, 2023 | 6.50% |
February 8th, 2023 | 6.50% |
December 7th, 2022 | 6.25% |
September 30th, 2022 | 5.90% |
August 5th, 2022 | 5.40% |
June 8th, 2022 | 4.90% |
May 4th, 2022 | 4.40% |
April 8th, 2022 | 4.00% |
February 10th, 2022 | 4.00% |
December 8th, 2021 | 4.00% |
October 8th, 2021 | 4.00% |
August 6th, 2021 | 4.00% |
June 4th, 2021 | 4.00% |
February 5th, 2021 | 4.00% |
December 4th, 2020 | 4.00% |
October 9th, 2020 | 4.00% |
August 6th, 2020 | 4.00% |
May 22nd, 2020 | 4.00% |
March 27th, 2020 | 4.40% |
February 6th, 2020 | 5.15% |
December 5th, 2019 | 5.15% |
October 4th, 2019 | 5.15% |
August 7th, 2019 | 5.40% |
June 6th, 2019 | 5.75% |
April 4th, 2019 | 6.00% |
February 7th, 2019 | 6.25% |
December 5th, 2018 | 6.50% |
October 5th, 2018 | 6.50% |
August 1st, 2018 | 6.50% |
June 6th, 2018 | 6.25% |
April 5th, 2018 | 6.00% |
February 7th, 2018 | 6.00% |
December 6th, 2017 | 6.00% |
October 4th, 2017 | 6.00% |
August 2nd, 2017 | 6.00% |
June 7th, 2017 | 6.25% |
April 6th, 2017 | 6.25% |
February 8th, 2017 | 6.25% |
December 7th, 2016 | 6.25% |
October 4th, 2016 | 6.25% |
August 9th, 2016 | 6.50% |
June 7th, 2016 | 6.50% |
April 5th, 2016 | 6.50% |
February 2nd, 2016 | 6.75% |
December 1st, 2015 | 6.75% |
September 29th, 2015 | 6.75% |
August 4th, 2015 | 7.25% |
June 2nd, 2015 | 7.25% |
April 7th, 2015 | 7.50% |
February 3rd, 2015 | 7.75% |
December 2nd, 2014 | 8.00% |
September 30th, 2014 | 8.00% |
August 5th, 2014 | 8.00% |
June 3rd, 2014 | 8.00% |
April 1st, 2014 | 8.00% |
December 18th, 2013 | 7.75% |
October 29th, 2013 | 7.75% |
September 20th, 2013 | 7.50% |
June 17th, 2013 | 7.25% |
May 3rd, 2013 | 7.25% |
March 19th, 2013 | 7.50% |
December 18th, 2012 | 8.00% |
October 30th, 2012 | 8.00% |
July 31st, 2012 | 8.00% |
June 18th, 2012 | 8.00% |
April 17th, 2012 | 8.00% |
March 17th, 2011 | 6.75% |
January 25th, 2011 | 6.50% |
November 2nd, 2010 | 6.25% |
The main reason behind the need for extra funds by commercial banks is the deficiency of assets. With this in mind, commercial banks seek a loan from the RBI for the short term. Such loans are usually against government protections. RBI loans the amount needed to the banks by buying bonds from these banks while signing an arrangement to sell them back at a later date. For example, if the RBI has fixed the repo rate at 5% while lending ₹100 Crore to a commercial bank, the premium that needs to be paid to the RBI will sit at ₹5 Crore/year.
Any changes in the repo rate can end up affecting various spheres of the country’s economy. This includes the impact on EMIs and even on the rates of interest on different types of personal loan, business and home loans. These changes can also end up impacting other spheres of the economy like FDs, mutual funds and savings accounts, to name a few.
Additional Read: Advantages of Home Loans for Women in India
The repo rate plays a huge role in helping the central bank of a country, RBI in India’s case, to control the flow of funds in the market. Keeping this in mind, during inflation, the RBI raises the repo rate. What this means is that with an increased repo rate, any banks seeking to borrow money from the RBI would need to pay more interest. As a result, banks will have second thoughts about borrowing money thus restricting the money that might enter the market otherwise aiding the negation of inflation. Conversely, when there is a recession, the RBI reduces the repo rate.
To help you understand the differences between the two interest rates, here is a detailed repo rate vs reverse repo rate list
Aspect | Repo Rate | Reverse Repo Rate |
Borrower and Lender Specifics | In the case of the repo rate, the lender is the RBI while the borrower is the commercial bank. | Here, the opposite holds true, the lender is the commercial bank and the borrower is the RBI. |
Importance | Helps RBI manage short-term deficiency of funds. | Decreases and controls the overall flow of money in the economy. |
Rate of Interest | Higher than reverse repo rate | Less than the repo rate |
Applicable Interest | The interest charge is defined in the repurchase agreement between the RBI and the commercial bank. | The interest charge is defined in the reverse repurchase agreement between the RBI and the commercial bank. |
Mechanism | Commercial banks get money from the RBI when the latter purchases government bonds from the former. | The RBI acquires funds from commercial banks through the deposit of their excess funds and the bank charges interest on this deposit. |
In case of a high interest rate | With high interest rates, the cost of funds goes up, making loans more expensive. | With high interest rates, the supply of money in the economy reduces since the excess funds of commercial banks are deposited with the RBI. |
In case of a lower interest rate | The cost of the funds reduces for commercial banks leading to lower interest rates on loans. | More money is supplied in the economy with lower interest rates as banks lend more and park less with RBI. |
Additional Read: Real Estate Sector Welcomes RBI's Decision to Maintain Repo Rate at 6.5%
Both the Repo Rate and Reverse Repo Rate are extremely important aspects that help central banks fulfil the various objectives of a country’s monetary policy. While the repo rate helps support the management of short-term liquidity in the market, the reverse repo market controls access to the excess liquidity.
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The repo rate is the interest rate at which the RBI or the Reserve Bank of India lets commercial banks borrow money
The reverse repo rate applies when the case gets reversed. So, when the RBI needs to borrow funds from commercial banks, it is charged the reverse rate.
The repo rate helps RBI manage short-term deficiency of funds while the reverse repo rate decreases and controls the overall flow of money in the economy.
Central banks might change both the repo rate and reverse repo rate for various reasons. With a high repo rate come higher borrowing costs which can help reduce inflation though it slows down the country’s economic growth. A low repo rate has the opposite effect. Similarly, with a high reverse repo rate, banks end up depositing more money with central banks which leads to a reduction in the money in the economic system, which helps in controlling inflation
With high repo rates, the cost of funds goes up, making loans more expensive while the cost of the funds reduces for commercial banks leading to lower interest rates on loans in case of a lower repo rate.
The repo rate helps the RBI earn more by lending funds to commercial banks. The reverse repo rate, on the other hand, accumulates interest on money that has been deposited with the RBI, by the commercial banks.
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