What is Repo Rate?

What is Repo Rate?

The repo rate is the interest rate at which a country’s central bank (in India, the Reserve Bank of India or RBI) lends money to commercial banks for a short period.

In simple words:

When banks need money, they borrow it from the RBI. The interest the RBI charges on that loan is called the repo rate.

Why Does the Repo Rate Matter?

The repo rate helps regulate the economy. Here’s how:

Example: Understanding Repo Rate with a Real-Life Scenario

Let’s say Bank A needs ₹1 crore to keep lending money to its customers. It borrows this from the RBI.

If the repo rate is 6%, Bank A repays ₹1.06 crore.

If the rate goes up to 7%, it repays ₹1.07 crore — more expensive.

If the rate drops to 5%, it repays ₹1.05 crore — cheaper.

Banks usually pass this cost on to customers. So your home loan, car loan, or EMI could change when repo rates change.

Why Does RBI Change the Repo Rate?

The RBI adjusts the repo rate depending on the state of the economy:

To fight inflation → Increase repo rate

To support growth → Reduce repo rate

It’s like a remote control to balance inflation and growth.

Current Repo Rate (As of April 2025)

Reserve Bank of India have set the repo rate at 6.00% following a 25 basis point reduction announced on April 09, 2025.

RBI Repo Rate changes since 2020

Conclusion

The repo rate is a powerful tool that impacts every part of the economy — including your pocket. Keeping track of it helps you stay ahead with smarter financial decisions.

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