In short
- The repo rate is the rate at which the RBI lends money to banks for short periods.
- When it changes, banks usually change many loan and deposit rates, though not all at once.
- Many floating-rate home loans are linked to the repo rate, so your EMI or your loan term can change.
What the repo rate is
Banks sometimes need to borrow money for a few days to manage their cash. They can borrow from the Reserve Bank of India by handing over government bonds and agreeing to buy them back later. “Repo” is short for repurchase. The interest the RBI charges on this is the repo rate.
It is the RBI's main signal of whether it wants money to be cheaper or dearer across the economy.
Who decides it, and why
The RBI's Monetary Policy Committee meets several times a year and votes on the rate. Its main job is to keep inflation in check while supporting growth (see inflation, in plain words).
Raising the rate makes borrowing dearer, which tends to cool spending and price rises. Cutting it makes borrowing cheaper, which tends to support spending and investment. These effects take months to work through, and they are never exact.
How it reaches your EMI
Many floating-rate home loans in India are linked to an external benchmark, often the repo rate itself. The bank adds a margin on top, called the spread. When the benchmark changes, your loan rate resets on a schedule set out in your loan agreement, often every few months.
When the rate goes up, the bank can raise your EMI, or keep the EMI the same and add months to your loan. Adding months can feel painless, but it usually means paying more interest in total. When the rate comes down, the reverse happens.
Fixed-rate loans don't move with the repo rate, but they often start at a higher rate, and the terms for switching can be strict.
And your deposits
Banks also tend to adjust fixed deposit and savings rates after a change, often more slowly than loan rates. A higher repo rate can mean better rates on new deposits. A fixed deposit you already hold usually keeps the rate it started with until it matures.
The repo rate in recent years
It stayed at 4% through 2020 and 2021, rose to 6.5% by 2023, and came down to 5.25% by the end of 2025. On 7 October 2026 the RBI raised it to 5.5%.
Questions to ask your lender
- Is my loan linked to the repo rate or to another benchmark?
- How often does my rate reset?
- When rates rise, do you change my EMI or my loan term, and can I choose?
- What is my spread, and can it change?
Educational content only. Not investment advice. Examples marked [hypothetical] are made up for teaching and do not show real or expected returns.