How does the repo rate affect the economy?

The repo rate helps regulate the economy’s inflation levels, liquidity, and supply of money. The repo rate is essential when designing new monetary policies. The repo rate has a considerable impact on the economy: It leads to economic growth Helps regulate the economy’s inflation level It regulates the overall consumption of the economy by either increasing or decreasing it It also regulates the money supply Availability of cash for retail consumers

What is Home Loan repo rate and how is it linked to Home Loan?

Your home loan interest rate is directly impacted by any modifications the RBI makes to the repo rate if you choose to link your Home Loan interest rate to the repo rate. Depending on the changes made to the repo rate, your Home Loan's interest rate may fluctuate.

What Is the relationship between inflation and repo rate?

Higher repo rates make it more expensive for banking institutions to borrow money from the RBI, which reduces market liquidity and controls inflation.

Repo Rate (October 2024) - Meaning, Current Rates, Difference and Impact

Q: What is Reverse Repo Rate?

The reverse repo rate is a tool in the RBI’s monetary policy that is helps regulate the country’s cash supply. The reverse repo rate controls the rate at which the central bank borrows money from commercial banks. The current Reverse Repo Rate as per the RBI is 3.35%

Q: How does repo rate impact Home Loan rates?

When the RBI lowers the repo rate, commercial banks can enjoy lowered borrowing costs, and the benefit will be passed along to customers. Homeowners’ interest rates are lowered as a result. Similar to this, when the repo rate rises, banks also experience an increase in borrowing costs, which results in an increase in the interest rate on home loans.

Q: What are repo and reverse rates?

Repo Rate: The term repo rate stands for repurchasing option rates or repurchasing agreement rates. Similar to other borrower, banking institutions are also required to pay interest on the money that they borrow from the central bank, and they will do so by pledging their securities such as gold or treasury bills to the RBI in exchange for availing an overnight loan to tackle their cash flow shortage. The repo rate is also used to control inflation in the economy. Reverse Repo Rate: The interest that the RBI must pay when borrowing money from financial institutions is known as the reverse repo rate. The reverse repo rate regulates liquidity in the market in order to reduce inflation. With a higher interest rate, banks are more likely to lend money to the RBI, which helps reduce the market's surplus liquidity.

Repo Rate (October 2024) - Meaning, Current Rates, Difference and Impact

Current Repo Rate: 2022_WC

Apply Now

Banner-Dynamic-Scroll-CockpitMenu_HomeLoan

RepoRateMeaning-WC

Current Repo Rate in India (Oct 2024)

As per the announcement made by the Reserve Bank of India (RBI) on 07 June 2024, the current Repo Rate is 6.50%*, which keeps the Repo Rate unchanged as the Monetary Policy Committee (MPC) unanimously decided.

The Reverse Repo Rate stands unchanged at 3.35%. The Bank Rate and the Marginal Standing Facility (MSF) rate have changed to 6.75%. The Standing Deposit Facility Rate is 6.25%. To learn more about the Repo Rate, read on.

Meaning of Repo Rate_WC

What is the Repo Rate?

To understand the meaning of Repo Rate, here is the breakup of the words. The word ‘Repo’ is derived from the phrases ‘Repurchasing Option’, or ‘Repurchasing Agreement’. Repo Rate refers to the rate at which commercial banks borrow funds from the RBI against security and bond collaterals. The assets are later repurchased from the apex bank at a predetermined price, as the name indicates. Similarly, when the RBI borrows from commercial banks, the interest charges are known as the Reverse Repo Rate.

The Reserve Bank of India’s monetary policy helps regulate the cash flow within the economy, using several instruments, such as the Repo Rate, Reverse Repo Rate, Statutory Liquidity Ratio (SLR) and Marginal Standing Facility (MSF).

Commercial banks resort to borrowing from the RBI to tide over a fund crisis, seeking short-term loans, sometimes over a span of just 24 hours.

RepoRateWork_WC

Recentlty Updated

What is the Current Repo Rate?

Recently, the Reserve Bank of India revised its rates on 07 June 2024, following which some specific rates have changed.

Interest Rate Type	Current Rate	Last Updated On
Repo Rate	6.50%*	07 June 2024

Note: The information is updated as per the Press Release dated 07 June 2024.

RBI Repo Rate History_WC

RBI Repo Rate History: 2014 - 2024

The following table shows the recent Repo Rates maintained by the RBI:

Last Update	Repo Rate
07-June-2024	6.50%*
08-February-2024	6.50%*
08-December-2023	6.50%*
06-October-2023	6.50%*
10-August-2023	6.50%*
08-June-2023	6.50%*
08-Feb-2023	6.50%*
07-Dec-2022	6.25%*
30-Sep-2022	5.90%*
08-Jun-2022	4.90%*
13-May-2022	4.40%*
04-Dec-2020	4%*
09-Oct-2020	4%*
06-Aug-2020	4%*
22-May-2020	4%*
27-Mar-2020	4.40%*
06-Feb-2020	5.15%*
05-Dec-2019	5.15%*
10-Oct-2019	5.15%*
07-Aug-2019	5.40%*
06-June-2019	5.75%*
04-Apr-2019	6.00%*
07-Feb-2019	6.25%*
01-Aug-2018	6.50%*
06-June-2018	6.25%*
02-Aug-2017	6.00%*
04-Oct-2016	6.25%*
05-Apr-2016	6.50%*
29-Sept-2015	6.75%*
02-June-2015	7.25%*
04-Mar-2015	7.50%*
15-Jan-2015	7.75%*
28-Jan-2014	8.00%*

How Does Repo Rate Work _WC

How Does Repo Rate Work?

The Repo Rate or repurchase rate is the interest rate at which the Central Bank of India (RBI) lends funds to commercial banks to meet short-term fund requirements to maintain liquidity and control inflation. During high inflation, RBI increases the Repo Rate thereby discouraging borrowing by businesses which in turn slows down the investment activities in the economy and reduces the supply of funds in the market. Besides inflation, you can see an increased Repo Rate when there is a risk of currency depreciation in the country. Alternatively, during a high recession, the Repo Rates are decreased to encourage borrowing and increase the flow of Funds in the market. The current Repo Rate as of June 2024 is 6.50%*.

Impact of the Repo Rate_WC

What is the Impact of the Repo Rate on the Economy?

The Repo Rate effectively determines the volume of liquidity in the economy. An increase in the Repo Rate will cost lenders more – the impact of which is passed to regular borrowers. When the RBI wants to pump up the cash circulation in the economy, the Repo Rate will likely be reduced to incentivise borrowing and cash expenditure. The Repo Rate affects the economy in the following ways:

Combats Inflation: The Repo Rate and inflation have an inverse relation; an increase in the rate ensures a limited circulation of cash in the economy, attempting to control the rise in inflation.
Boosts Liquidity: On the other hand, when there is a dire need for cash liquidity in the economy, a slash in the Repo Rate helps by promoting a cheaper cost of borrowing and investments.

How Does Repo Rate Affect Home Loan?

The Repo Rate revision by the Reserve Bank of India on 07 June 2024 has a certain impact on Home Loans. The following is the list of impacts the Repo Rate may have on a Home Loan:

EMI: Home Loan interest rates can be impacted because of the increase in the Repo Rate. This may lead to an increase in the EMI due to which, the borrowers will have to pay a higher monthly instalment. However, if the Repo Rate is decreased, the Home Loan interest rate may decreases too. The decrease in the Repo Rate will decrease the monthly instalment to be paid by the borrower.
Interest Rate: The increase in the Repo Rate may increase the Home Loan interest rate, which means that the borrowers will have to pay higher interest on their Home Loan. Contrarily, if the Repo Rate decreases, the Home Loan interest rate may decrease, in which case, the borrowers will have to pay a lower interest rate.
Loan Eligibility: With the increase in Repo Rate, the loan amount that the borrowers are eligible for, may get reduced. However, if the Repo Rates are decreased, the borrowers may get a loan amount they are eligible for.
Loan Feasibility: The feasibility of a Home Loan depends on the Repo Rate. With an increase in the Repo Rate, availing of a Home Loan may become less convenient. On the other hand, if the Repo Rate decreases, the feasibility of availing a Home Loan may increase.

The Impact of Repo Rate Rise on Individuals_WC

The Impact of Repo Rate Rise on Individuals

Effect on Savings - Individuals having savings and fixed deposits will enjoy higher rates and returns when the Repo Rate increases.
Effect on Borrowing - A rise in the present Repo Rate will lead to decreased borrowing power as the lending rates increase.
Effect on Mortgage Rates - A hike in Repo Rate means all existing Home Loans with floating rates of interest are likely to become expensive, as banks may decide to pass on the hike to customers. This will inevitably lead to an increase in the equated monthly instalments (EMIs) on Home Loans for buyers.

Repo Rate Linked Home Loans_WC

What is Repo Rate Linked Home Loans?

When borrowers link their Home Loan interest rates to the RBI Repo Rate, they link their interest rate to a benchmark external to the lender. Here are two components of a Repo Rate linked Home Loan: 

The Repo Rate: Borrowers can link their Home Loan to the RBI Repo Rate, which is currently at 6.50%*. It lends a degree of transparency to borrowers, letting them monitor one of the factors that dictate any increase or decrease in their Housing Loan interest rate.
The Spread: This is the additional margin lenders charge on top of the Repo Rate to determine the final Home Loan interest rate. While the Repo Rate is fixed at the national level, the spread is determined based on the individual’s profile, considering the risk factors attached to your Home Loan application.

Bajaj Housing Finance offers attractive Repo Rate linked Home Loans to eligible applicants. Apply today to benefit from our attractive lending terms. 

Repo Rate vs Bank Rate

Repo Rate vs. Bank Rate

Commercial and central banks use the Repo Rate and Bank Rate to calculate lending and borrowing. These rates are used by the Reserve Bank of India (RBI) to lend funds to banks or other financial institutions and control the cash flow in the market.

Let us understand the distinguishing factors between the Repo Rate and the Bank Rate. Repo Rate is the interest rate that the RBI charges banks when they want to borrow funds, pledging government securities. On the other hand, Bank Rate is the rate of interest at which the RBI lends funds to banks without pledging any securities. Read further to know the differences between the Repo Rate and the Bank Rate.

Repo Rate: This rate is usually lower than the Bank Rate because the lenders and other financial institutions pledge government securities against the loan. The effect of the Repo Rate on loans is less critical than that of the Bank Rate, however, it might affect the borrowing activity. The RBI utilises the Repo Rate to meet the short-term financial needs of commercial banks.
Bank Rate: Here, the banks do not pledge any securities against the funds they borrow from the RBI. The Bank Rate is therefore higher than the Repo Rate. When RBI increases the Bank Rates, the banks increase the rate of interest they charge on the loans, making the loans expensive for the borrowers. RBI uses Bank Rates to fulfil the long-term economic goals of the country.

Repo Rate Vs Reverse Repo Rate

Repo Rate vs. Reverse Repo Rate

While the Repo Rate is the rate at which the RBI lends funds to commercial banks against government securities, the Reverse Repo Rate is the rate at which the central bank borrows funds from commercial banks. The RBI pledges securities with the banks for a short term in order for the commercial banks to voluntarily deposit their funds at a favourable interest rate. Here are the key differences between Repo Rate and Reverse Repo Rate:

Repo Rate is used to control the cash flow and inflation in the market by managing the lending activity. Reverse Repo Rate, alternately, is utilized to control the economy’s liquidity and stabilise the financial systems.
While the Repo Rate is the monetary policy that is used to control inflation by reducing the supply of cash, the Reverse Repo Rate is used to control inflation and maintain financial systems.
The rate of interest for the Repo Rate is higher than the Reverse Repo Rate.
Repo Rate may affect loans or investment activities. It can also affect the stock market performance. Reverse Repo Rate may affect short-term lending or borrowing and market conditions.

*Terms and conditions apply.

repo_faqs_WC

Frequently Asked Questions

The Reverse Repo Rate is a tool in the RBI’s monetary policy that is helps regulate the country’s cash supply. The Reverse Repo Rate controls the rate at which the central bank borrows funds from commercial banks. The current Reverse Repo Rate as per the RBI is 3.35%.

When the RBI lowers the Repo Rate, commercial banks can enjoy lowered borrowing costs, and the benefit will be passed along to customers. Homeowners’ interest rates are lowered as a result. Similar to this, when the Repo Rate rises, banks also experience an increase in borrowing costs, which results in an increase in the interest rate on Home Loans.

The Marginal Cost of Funds Based Lending Rate or MCLR is the minimum lending rate below which a bank cannot lend. The Reserve Bank of India introduced the MCLR on April 1, 2016, for determining the interest rates for loans. It replaced the base rate system which was previously used to decide a commercial bank’s lending rates. Basically, banks take into account MCLR before deciding the maximum interest rate they can charge for loans.

Repo Rate:

The term Repo Rate stands for repurchasing option rates or repurchasing agreement rates. Similar to other borrower, banking institutions are also required to pay interest on the funds that they borrow from the central bank, and they will do so by pledging their securities such as gold or treasury bills to the RBI in exchange for availing an overnight loan to tackle their cash flow shortage. The Repo Rate is also used to control inflation in the economy.

Reverse Repo Rate:

The interest that the RBI must pay when borrowing funds from financial institutions is known as the Reverse Repo Rate. The Reverse Repo Rate regulates liquidity in the market in order to reduce inflation. With a higher interest rate, banks are more likely to lend funds to the RBI, which helps reduce the market's surplus liquidity.

Type	Rate
Repo Rate	6.50%*
Reverse Repo Rate	3.35%

Higher Repo Rates make it more expensive for banking institutions to borrow funds from the RBI, which reduces market liquidity and controls inflation.

Although both rates are short-term tools used by the RBI to lend loans and control the cash flow in the market, the Repo Rate is the interest rate that the RBI lends to the commercial banks when they want to borrow funds against government securities. On the other hand, Bank Rate is the rate of interest at which the RBI lends funds to banks without pledging any securities.

An increase in the Repo Rate occurs when the central bank intends to control inflation or increase the liquidity of banks. The RBI increases the Repo Rate when they need to control prices and restrict borrowings.

The direct effect of a Repo Rate hike is an increased rate of interest on Home Loans as both are directly linked. An increase in the Repo Rate means commercial banks have to pay more interest to the central bank from where they borrow funds and therefore, it eventually affects Home Loans leading to increased EMIs and/or loan tenors.