What Is the Repo Rate?

The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to banks overnight, against government securities as collateral. Since 7 October 2026 it has stood at 5.50 per cent, after the RBI's Monetary Policy Committee raised it by 25 basis points to fight rising inflation.

That single number is the RBI's main lever on the economy. When it goes up, money gets dearer for banks, then for borrowers; when it comes down, loans get cheaper. For millions of Indian families with a floating rate home loan, a repo decision now shows up in the EMI within a few months.

What "repo" actually means

"Repo" is short for repurchase agreement. A bank that needs cash sells government securities to the RBI and agrees to buy them back the next day at a slightly higher price. The difference works out to interest, and the annualised rate on that deal is the repo rate. Economically it is a secured overnight loan, with the bonds acting as a pledge.

The RBI's own primer on the government securities market explains that this happens under the Liquidity Adjustment Facility (LAF): scheduled commercial banks and primary dealers can borrow from the RBI overnight, or park surplus funds with it, against central and state government securities, with the RBI as counterparty to every trade. The interest rate in the LAF is fixed by the RBI, which the primer calls "an important tool of monetary policy and liquidity management."

Two neighbouring rates complete the picture. The standing deposit facility (SDF) is what the RBI pays banks that park spare money with it, and it forms the floor of the overnight market. The marginal standing facility (MSF) is an emergency window where banks can borrow above the repo rate when they are short, and it forms the ceiling. After the October 2026 decision, the RBI's notice to LAF participants set the SDF at 5.25% and the MSF at 5.75%, a quarter point either side of the 5.50% repo rate. The old Bank Rate moves with the MSF and is also 5.75%.

Who decides the repo rate

Since 2016 the repo rate has not been the Governor's call alone. Inflation targeting was written into the RBI Act, 1934 that year, and the decision passed to a six-member Monetary Policy Committee (MPC). A Press Information Bureau release on its October 2024 reconstitution sets out the structure: three members from the RBI (the Governor as chair, the Deputy Governor in charge of monetary policy and one RBI officer nominated by the central board) and three outside experts appointed by the central government for four years. The current external members are economists Nagesh Kumar, Saugata Bhattacharya and Ram Singh.

The committee has one main job: hit an inflation target set by the government. On 25 March 2026 the Ministry of Finance renewed that target for another five years through Gazette notification S.O. 1580(E): 4 per cent CPI inflation, with an upper tolerance level of 6 per cent and a lower level of 2 per cent, running from April 2026 to March 2031. Deputy Governor Poonam Gupta, in a May 2026 speech on the framework's first decade, noted that average headline inflation fell from 8.1 per cent in 2006 to 2016 to 4.6 per cent in 2016 to 2026, while growth held up.

The MPC usually meets six times a year. Each meeting ends with a published resolution, and the law requires the RBI to publish minutes, including each member's vote and statement, on the fourteenth day after the meeting. That transparency is why the market can read not just the rate, but how close the vote was.

Why the RBI raised it in October 2026

The latest move reversed a long easing run. In February 2025 the MPC cut the repo rate from 6.50% to 6.25%, opening an easing cycle. More cuts followed, including a jumbo 50 basis point cut to 5.50% in June 2025, and a final 25 basis point cut to 5.25% in December 2025, when food prices were exceptionally soft. In all, as The Hindu tallied, the committee took 125 basis points off the rate, then held at 5.25% for four meetings.

By autumn 2026 the picture had flipped. The October 2026 MPC resolution records that CPI inflation rose to 4.8% in August 2026, with a deficient south-west monsoon, El Niño conditions and volatile crude oil prices after renewed conflict in West Asia all pushing prices up. The RBI now projects inflation at 5.2% for 2026-27, touching 6.0% in the October to December quarter, right at the upper edge of its tolerance band. Growth, meanwhile, was strong: real GDP grew 7.8% in April to June 2026.

So all six members voted to lift the repo rate by 25 basis points to 5.50%, and the stance changed from "neutral" to "calibrated tightening", which the RBI says simply means rate cuts are off the table and the next move can only be a hike or a pause. The minutes released on 21 October 2026 show the split behind the unanimity: Nagesh Kumar and Ram Singh backed the hike but wanted to keep the neutral stance. Ram Singh argued that at the old rate the projected inflation path would push the real repo rate (the policy rate minus inflation) below zero, rewarding borrowing over saving. The next meeting is scheduled for 2 to 4 December 2026.

How a repo change reaches your home loan

For years a repo cut barely reached ordinary borrowers. Banks priced loans off internal benchmarks such as the base rate and then the MCLR (marginal cost of funds based lending rate), which moved slowly. The RBI's own study group concluded that these internal benchmarks "have not delivered effective transmission of monetary policy."

The fix came in a September 2019 RBI circular. From 1 October 2019, all new floating rate personal or retail loans, such as housing and auto loans, and floating rate loans to micro and small enterprises had to be linked to an external benchmark: the RBI policy repo rate, a 3-month or 6-month Treasury bill yield, or another market rate published by Financial Benchmarks India. Banks set their own spread over the benchmark, but the interest rate must be reset at least once every three months. Loans pegged to the repo rate itself are the ones lenders advertise as "repo linked" home loans.

That system now dominates. The RBI's September 2026 data on lending and deposit rates shows that 68.2% of banks' outstanding floating rate loans were linked to an external benchmark at end-June 2026, against 29.6% still on the MCLR. The same release puts the weighted average lending rate on fresh rupee loans at 8.61% in August 2026, and on all outstanding loans at 8.96%.

Here is what a 25 basis point move means in practice. On a ₹50 lakh home loan over 20 years, the EMI is about ₹41,822 at 8.00% and about ₹42,603 at 8.25%: roughly ₹780 more a month, or about ₹1.87 lakh over the life of the loan if the rate stayed there. Some lenders adjust the tenure rather than the EMI, so check your loan statement after each reset date rather than waiting for a call from the bank. Your spread over the repo rate also depends on your credit profile, which is why a strong CIBIL score can be worth as much as a rate cut.

Savers, markets and the rupee

The repo rate cuts both ways. When it rises, banks eventually pay more on fixed deposits too, although deposit rates usually move more slowly than loan rates. The RBI's September release shows the average rate on fresh term deposits at 5.67% in August 2026, after a long easing cycle; savers will be watching whether the October hike lifts that number.

Markets react faster. Bond prices fall when rates are expected to rise, because older bonds with lower coupons become less attractive, and share prices often wobble on rate surprises, the daily tug of war that gave us bull and bear markets. In his minutes statement, MPC member Saugata Bhattacharya also pointed to the rupee: keeping a gap between Indian and rich-country interest rates helps attract foreign debt capital and steady the currency.

There is a household angle here too. When real interest rates are low or negative, deposits lose ground to inflation, and families reach for assets that hold value, which is one reason Indians buy so much gold. A higher repo rate that keeps inflation near 4% protects the purchasing power of the rupee in a savings account.

Common myths about the repo rate

"The repo rate is the rate I pay on my loan." No. It is the rate banks pay the RBI. Your loan rate is the repo rate plus the bank's spread, which covers its costs, profit and your credit risk. A repo linked loan at 8.25% when the repo rate is 5.50% carries a spread of 2.75 percentage points.

"A repo change hits every loan the same day." Only external benchmark loans follow it mechanically, and even then only at the next reset. MCLR loans and fixed rate loans move slowly or not at all.

"The government sets the repo rate." The government sets the inflation target and appoints half of the MPC. The rate itself is decided by vote in the committee, chaired by the RBI Governor, who has a casting vote only if there is a tie.

So what is the repo rate? It is the price of overnight money between the RBI and the banks, currently 5.50%, set by a six-member committee whose job is to keep inflation near 4%. Through repo linked loans it now travels from the RBI's Mumbai headquarters to the family budget faster than ever, which makes the next MPC announcement worth watching even if you never buy a bond.