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

On December 5, 2025, the Reserve Bank of India cut the repo rate by 25 basis points to 5.25%. This reduction in the repo rate marks the second consecutive reduction to boost economic growth amid global uncertainties and inflation. However, the reserve report rate is unchanged at 3.35%. 

In this article, we will check the recent inflation rate, GDP projection pact, and the history of the repo rate. 

What Is Repo Rate?

The repo rate is also known as the interest rate at which commercial banks borrow from the Reserve Bank of India (RBI). When borrowing funds, commercial banks pledge government securities as collateral. This effectively impacts the EMIs, lending rates, and the overall credit availability in the economy. 

In a nutshell, the lower repo rates make borrowing money for commercial banks cheaper, encouraging spending and growth. Whereas a higher report rate does the opposite. 

What Is BPA or Basis Point?

The acronym for basic point is BPS, which is a unit of measurement in finance. It is used to express the rate of change in the index or other benchmark, or the percentage change in the value of the financial instrument. 

In the context of decimals, 1 basis point is equal to 0.0001, or 0.01%, which is 1/100 of a percent. 

The Current RBI Policy Rates 

The following table exemplifies the current RBI policy rates. 

How Does The Repo Rate Work?

When an individual borrows money from a commercial bank, the transaction is subject to interest on the borrowed principal. This interest is referred to as the cost of credit. Now, similar commercial banks, during a cash crunch, borrow money from the Reserve Bank of India and, on the borrowed funds, are required to pay interest to the RBI. This interest rate is known as the repo rate. 

Technically, quoting the repo rate means "Repurchasing Option" or "Repurchasing Agreement". It is a kind of agreement under which the bank provides eligible securities, such as treasury bills, to the central bank of India, namely the RBI, in exchange for overnight loans. 

In addition, an agreement to repurchase them at a set price is in place. Henceforth, the commercial banks get the money, and the Central Bank gets the security as collateral. 

What is the Reverse Repo Rate

A reverse repo rate is also the interest rate at which the Reserve Bank of India RBI borrows short-term funds from the commercial banks. RBI manages liquidity wherever required. Commercial banks often prefer to park their surplus money with the RBI easily. This helps them earn interest on their idle funds, and it is also secure. 

RBI Repo Rate History 2015 to 2026

The following table showcases the current repo rate maintained by the Reserve Bank of India.

Current Rate Table 

What Are The Impacts Of Repo Rate Cut

The following are the impacts and effects of the Repo Rate Cut

Impact Of Repo Rate Changes

Fluctuations in the repo rate affect loans, deposits, markets, and economic growth by altering liquidity and borrowing costs. 

How Does The Repo Rate Affect Home Loan?

By now, we understand that the repo rate is the interest rate at which the RBI lends money to banks directly, and it dictates the cost of floating-rate home loans. Now, an increase in the repo rate raises home loan interest rates, leading to higher EMIs or longer home loan tenures. 

Whereas a repo rate cut reduces the home loan interest rates, lowering the EMIs. In a nutshell, repo rates directly influence home loan interest rates, affecting EMIs and loan costs. 

How Does Repo Rate Affect Fixed Deposits (FDs)

The increase in the repo rate may be quite advantageous for investors seeking fixed deposits with competitive rates and low risk. Fixed deposits are expected to appreciate in value as investments. Certain changes to the Reserve Bank of India policy repo rate will affect the bank lending and deposit rates. The different commercial banks and NBFCS will make the decisions on the actual rate adjustments. 

How Does Repo Rate Affect The Stock Market?

The stock market and the interest rate are inversely related. Every time the Reserve Bank of India raises the repo rate, the stock market is affected immediately. 

This means that an increase in the repo rate leads businesses to cut expansion spending, slowing growth, directly impacting profits and future cash flows, and causing stock prices to drop. 

How Does Repo Rate Affect The Economy?

Repo rate is the backbone of Indian monetary policy, governing the country's inflation levels, money supply, and liquidity. Furthermore, the report's levels directly affect banks' borrowing costs. The higher the report rate, the higher the banks' borrowing costs, and vice versa. 

Rise in Inflation: When inflation levels are high, the RBI makes strong efforts to reduce the flow of money in the economy. One way RBI does that is by increasing the repo rate. This makes borrowing money a costly affair for industries and businesses, which, in turn, slows down investment and ultimately the supply of money in the market.

Increasing Liquidity In The Market: Consequently, the RBI needs to pump money into the system and lower the rate. This way, businesses and individuals can borrow money more cheaply for different purposes. When the repo rate is reduced, banks generally lend more, making credit more accessible to businesses. Furthermore, it also pumps money into the economy, ultimately boosting its growth rate. 

What Are The Components Of A Repo Transactions

The following are the parameters on which the RBI executes transactions with commercial banks. 

• Preventing the Economy's "Squeezes": Depending on the economic inflation, the Reserve Bank of India either increases or decreases the repo rate. This is done to control the economy by keeping inflation within limits. 
• Hedging & Leveraging: The Decentral bank of India aims to leverage and hedge by buying securities and bonds from other banks and then providing cash to them in return for the collateral deposit.
• Short-Term Borrowing: The Reserve Bank of India lends money for a short period, typically overnight, with banks buying back its securities at a predetermined price. 
• Collateral and Securities: The central bank of India, that is the RBI, accepts collateral in the form of bonds or gold. 
• Cash Reserve or Liquidity: Banks usually borrow money from the Reserve Bank of India to maintain either liquidity or a cash reserve as a precautionary measure. 

Other RBI Rates vs Repo Rate

In addition to the repo rate, the Reserve Bank of India uses other policy rates to manage liquidity and monetary conditions in the economy. 

The Bottom Line

The repo rate is an essential monetary policy tool used by the RBI to manage liquidity, economic growth, and inflation. Any fluctuations or changes in the repo rate influence loans, EMIs, deposit returns, market sentiment, and overall credit flow. Understanding the movements of the repo rate helps borrowers, investors, and savers make informed financial decisions.