Repo Rate & Reverse Repo Rate Explained - Meaning, Current Rate, History & Impact

Ever wondered why your EMIs change or why FD rates keep shifting?

Behind all this is one important number - the RBI Repo Rate.

This is the rate at which the Reserve Bank of India lends money to banks. And when that cost changes, it trickles down to your loans, savings, and even investments.

In this guide, we’ll explain:

• What the current repo rate is
• Latest RBI MPC Meeting News
• What repo and reverse repo rates mean
• What Repo Rate Means for the Economy & for You
• And how these rates have changed over time

Current RBI Repo Rate

Let’s take a quick look at where the key RBI rates stand today. These rates are updated every two months after the RBI’s Monetary Policy Committee (MPC) meeting.

Latest RBI Rates (As of June 6, 2025)

What is Repo Rate?

The repo rate is the interest rate at which RBI lends money to banks when they’re low on funds.

In simple terms:

Repo Rate = The cost banks pay to borrow from RBI

When RBI raises the repo rate:

• Borrowing gets costlier for banks
• Banks raise loan rates
• Your EMIs go up

When RBI lowers the repo rate:

• Banks borrow at cheaper rates
• Loan interest may fall
• Your EMIs can reduce

Quick example:

If you have a ₹10 lakh home loan at 8.5% and the rate drops to 8%, your EMI could reduce by a few hundred rupees each month - that’s real savings over time.

What is Reverse Repo Rate?

While repo rate is about banks borrowing from RBI, the reverse repo rate is about RBI borrowing from banks.

Sometimes, banks have extra cash. Instead of lending it out, they can park it with RBI and earn interest - that’s the reverse repo rate.

Reverse Repo Rate = Interest RBI pays to banks when it borrows from them

This helps RBI:

• Control inflation (by absorbing extra money from the system)
• Manage liquidity (by encouraging banks to lend more or less)

How they work together:

• Repo rate = RBI lends to banks
• Reverse repo = RBI takes money from banks

They’re two sides of the same coin - both used by RBI to manage money in the economy.

Repo Rate vs Reverse Repo Rate - Key Differences

Now that we’ve covered both terms, let’s quickly compare them.

Both repo and reverse repo rates are tools used by the RBI to control money flow in the economy. But they work in opposite directions.

Here’s a simple breakdown:

Historical Repo Rate Updates (2016 – 2025)

Why Does RBI Change the Repo Rate?

The RBI doesn’t change the repo rate randomly. Every hike or cut is a strategic move to manage inflation, support growth, or control liquidity in the economy. RBI uses repo rate like a volume knob: turns it up to cool inflation, down to heat growth

1. To Control Inflation

When prices rise too fast, the RBI increases the repo rate. Costlier loans lead to less borrowing and spending, which helps bring prices down.

2. To Boost Economic Growth

During slowdowns, like COVID-19, the RBI cuts the repo rate to make borrowing cheaper. This encourages spending and helps revive the economy.

3. To Manage Liquidity

If there’s too much money in the system, RBI may raise rates to absorb it. If there’s too little, it cuts rates to release more funds into the economy.

4. Who Decides the Rate?

The Monetary Policy Committee (MPC), which meets every two months, sets the repo rate. They base their decision on inflation, GDP trends, global factors, and domestic liquidity.

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FAQs

1. How does the repo rate affect my home loan?

If your home loan is linked to the repo rate, changes in the rate can directly impact your EMIs. A lower repo rate may reduce your EMI, while a higher rate could increase it.

2. Does a lower repo rate mean better FD returns?

No. When the repo rate is low, banks earn less on their lending and usually lower the interest rates on fixed deposits as well.

3. How often does the RBI change the repo rate?

The RBI reviews the repo rate every two months during its Monetary Policy Committee (MPC) meetings. The rate may or may not change depending on economic conditions.

4. Who decides the repo rate in India?

The repo rate is decided by the Monetary Policy Committee (MPC) of the RBI, which includes RBI officials and independent economic experts.

5. Is a higher repo rate good or bad?

It depends. A higher repo rate is helpful for controlling inflation and may lead to better FD returns. However, it also means costlier loans and higher EMIs for borrowers.

6. Is the repo rate linked to savings account interest?

Not directly. Savings account rates are set by banks and may change based on overall interest rate trends. But repo rate cuts can sometimes lead to lower savings rates over time.

7. How does the repo rate impact mutual funds or SIPs?

Debt mutual funds (especially short-term or overnight funds) are more directly affected by repo rate changes. When the repo rate falls, these funds may see lower returns. Equity SIPs are less impacted in the short term.