What Is Repo Rate? Meaning, Current Rate and How It Is Calculated

The repo rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks for short periods. “Repo” is short for repurchase agreement. A bank borrows from the RBI by selling government securities and agreeing to buy them back on a fixed date at a slightly higher price. The difference is, in effect, the interest, and the rate applied is the repo rate.

The RBI uses it to manage liquidity and to keep inflation in check. When the repo rate rises, borrowing becomes costlier for banks, and they generally pass this on to borrowers. When it falls, credit becomes cheaper. For the wider system behind this, see our guides on the Indian banking system and the role of banks in the financial world.

As of 13 October 2026, the repo rate is 5.50%. According to the RBI’s press release, the Monetary Policy Committee voted unanimously on 7 October 2026 to raise the policy repo rate by 25 basis points to 5.50%. It also changed the stance to “calibrated tightening”, which signals that rate cuts are off the table in the near term and that the next move can only be a hike or a pause. This was the first hike since February 2023.

RBI Policy Rates After the October 2026 Decision

The rate fell in 2025 to support growth as inflation eased, and the October 2026 hike partly reverses that, reflecting inflation and global uncertainty. The MPC has projected FY2026-27 GDP growth of 7.1% and CPI inflation of around 5.2%. Rates change often, so always check the RBI website for the latest figure.

Many people search for how the repo rate is “calculated”, but there is no mathematical formula that produces it. It is a policy decision made by the RBI’s Monetary Policy Committee (MPC).

Who Decides?

The MPC has six members, three from the RBI, including the Governor, and three external members appointed by the government. It meets at least four times a year, and in practice holds six scheduled meetings. Each member votes, and the decision follows the majority, with the Governor holding the casting vote in the event of a tie.

What Does the MPC Consider?

• Inflation: the RBI has a target of 4% consumer price inflation with a tolerance band of plus or minus 2 percentage points.
• Economic growth: cheaper credit supports growth, but too much can overheat the economy, a classic macroeconomic trade-off explained in our guide to microeconomics vs macroeconomics.
• Liquidity: how much money is available in the banking system.
• Global conditions: oil prices, exchange rates and decisions by other major central banks.
• Fiscal position: government borrowing and spending. Our guide to fiscal policy in India explains how it works alongside monetary policy.

How Interest on a Repo Is Calculated

While the rate itself is a decision, the interest on a particular repo borrowing is a simple calculation:

Interest = Amount borrowed × Repo rate × Days ÷ 365

For example, if a bank borrows ₹100 crore overnight at 5.50%, the interest is ₹100 crore × 5.50% × 1 ÷ 365, which is about ₹1.51 lakh. For seven days, it would be about ₹10.55 lakh. This is an illustration of the arithmetic, not an actual transaction.

1. A bank faces a shortfall of funds, perhaps because of heavy loan demand or deposit outflows.
2. It offers government securities to the RBI as collateral and borrows cash at the repo rate.
3. On the agreed date, the bank repays the money with interest and gets its securities back.
4. If the RBI raises the rate, borrowing from it gets costlier. Banks then tend to raise their lending rates, and credit growth slows, which helps reduce inflation.
5. If the RBI cuts the rate, banks can borrow more cheaply and may lower loan rates, which encourages spending and investment.

The reverse repo rate works in the opposite direction. It is the rate at which the RBI borrows money from commercial banks, and it is used to absorb excess liquidity from the system. When banks have surplus cash, they can lend it to the RBI and earn this rate.

Historically, the reverse repo rate sat below the repo rate. The fixed reverse repo rate is 3.35%, but since April 2022 the RBI has used the standing deposit facility as its effective floor for overnight rates. The SDF rate is 5.25%, which is 0.25 percentage points below the repo rate. So when people say “reverse repo rate” today, they usually mean the effective rate banks earn by depositing with the RBI.

Repo Rate vs Reverse Repo Rate

Since October 2019, the RBI has required banks to link new floating-rate retail loans, such as home loans, to an external benchmark, and many banks use the repo rate for this. When the repo rate changes, the benchmark changes, and your interest rate is reset according to your loan agreement.

Here is a simple example. Suppose you have a ₹50 lakh home loan for 20 years.

That is a difference of about ₹795 a month, or roughly ₹1.9 lakh over the full term if the higher rate continued. This is an illustrative calculation, and your actual change depends on your lender’s spread and reset policy. You can run your own numbers with our guides on how to calculate EMI and the education loan EMI calculator.

What a Rate Rise or Cut Means

Banks may adjust deposit and loan rates at different speeds, so changes are not always immediate or equal.

The main reason is to keep inflation within its target while supporting growth. When prices rise too fast, the RBI tightens by raising the rate. When growth weakens and inflation is under control, it can ease. Understanding why prices change is central to this, so read our explainer on inflation and purchasing power shifts. Because the repo rate affects businesses, households and the exchange rate, it is part of the wider economic environment of business.

• Borrowers: check whether your loan is linked to the repo rate, how often it resets and what spread your lender charges. Consider prepaying when rates rise.
• Savers: review fixed deposit rates after policy changes, but do not chase the highest rate without checking safety.
• Students and exam aspirants: repo rate, SDF, MSF and CRR questions are staples of banking exams. Our guide to the RBI Grade B exam shows how these topics are tested.
• Everyone: follow policy announcements and our updates on new RBI rules.

Understanding monetary policy is a core skill for bankers, treasury professionals, economists and credit analysts. If you are exploring this field, see our guide on banking courses after graduation and our overview of the history and evolution of the Indian banking system.

The repo rate is the RBI’s main lever for steering inflation and growth. It currently stands at 5.50% after the October 2026 hike, it is set by the Monetary Policy Committee rather than by a formula, and it influences everything from bank borrowing costs to your home loan EMI. The reverse repo rate is its mirror image, and today the SDF rate does most of that work.

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