What the repo rate actually is, and how it reaches your EMI

"Repo" is short for repurchase agreement. When a bank needs money overnight, it can borrow from the Reserve Bank of India by handing over government bonds as security and agreeing to buy them back the next day at a slightly higher price. That small extra cost, expressed as a yearly rate, is the repo rate.

Since 7 October 2026, it has been 5.50%.

It's not one rate, it's a corridor

The repo rate sits in the middle of a band of three rates that the RBI sets together:

• SDF 5.25%The Standing Deposit Facility. What banks earn when they park spare cash with the RBI. Nobody lends to anyone else for less than this.
• Repo 5.50%The headline rate. The RBI steers short-term market rates towards it.
• MSF 5.75%The Marginal Standing Facility. An emergency window for banks that run short. Nobody needs to borrow for more than this.

When the RBI "hikes by 25 basis points", all three usually move together by 0.25 percentage points. A basis point is one-hundredth of a percentage point.

How it reaches your EMI

The link between the RBI and your home loan is much tighter than it used to be. Since October 2019, the RBI has required banks to link new floating-rate loans to individuals and small businesses to an external benchmark, and most banks chose the repo rate. These are called EBLR loans, short for external benchmark lending rate.

Your loan rate is the benchmark plus a spread that your bank fixes when you borrow, based on things like your credit score. The spread stays the same; the benchmark moves. Banks must reset EBLR loans at least once every three months.

Why the RBI moves it at all

The RBI's main job is to keep inflation close to 4%, within a band of 2% to 6%. Raising the repo rate makes borrowing dearer, which cools spending and, over time, prices. Cutting it does the opposite and supports growth. The decision is taken by a six-member Monetary Policy Committee that meets six times a year.

The effect isn't instant. Economists usually reckon it takes several quarters for a rate change to show up fully in inflation, which is why the RBI sets rates based on where it expects prices to be, not where they are today.

What it doesn't control

• Fixed-rate loansMost personal loans and many car loans are fixed. A repo change affects only new loans of that kind.
• Old-style loansLoans still linked to a bank's MCLR or base rate move more slowly, because those benchmarks are set by the bank itself.
• DepositsBanks usually raise loan rates faster than deposit rates. New fixed deposits do tend to pay more after a run of hikes.

Read how the RBI used this tool in practice: the 2022–23 hiking cycle and the 2025 cuts.