What Is the Repo Rate?

The Repo Rate (Repurchase Rate) is the interest rate at which the Reserve Bank of India (RBI) lends short-term money to commercial banks.

Whenever banks need funds, they borrow from RBI by offering government securities as collateral.
RBI charges interest on this amount — that interest rate is the repo rate.

🏦 Why Does RBI Change the Repo Rate?

RBI adjusts this rate to control inflation, manage liquidity, and ensure economic stability.

✔ When inflation is high → RBI increases repo rate

This makes loans expensive and reduces spending, which helps control price rise.

✔ When economic growth is slow → RBI reduces repo rate

This makes loans cheaper, encouraging people and businesses to borrow and spend more.

⚙️ How Repo Rate Affects You
1. Loan EMIs

Higher repo rate = costly EMIs (home, car, business, personal loans)

Lower repo rate = cheaper EMIs

Banks directly link many loans to the repo rate today (RLLR system), so changes impact borrowers quickly.

2. Savings & FDs

Higher rates = Better FD returns

Lower rates = Reduced deposit interest

3. Business Growth

Higher repo rate → Costly business loans → Slower expansion

Lower repo rate → Cheaper credit → More hiring, production, growth

4. Inflation Control

Repo rate helps regulate prices of essentials like food, fuel, and daily items by controlling demand.

📈 How Repo Rate Is Decided

The Monetary Policy Committee (MPC) meets every two months and reviews:

Inflation levels

GDP growth

Rupee stability

Global economic conditions

Banking system liquidity

Based on these factors, MPC decides whether to increase, decrease, or keep the repo rate unchanged.

🌍 Global Impact on Repo Rate

Global events like:

US Federal Reserve rate hikes

Oil price changes

War or geopolitical tensions

Global recession fears

…also influence RBI's decisions because India trades and interacts with the world economy.

📌 Summary

Repo Rate is the interest rate at which RBI lends money to banks.

It is a key tool to control inflation, money supply, and economic growth.

Increase in repo rate makes loans expensive and reduces inflation.

Decrease in repo rate makes loans cheaper and boosts growth.

Repo rate changes affect EMIs, FD returns, business loans, and overall economy.

MPC reviews the rate every two months based on economic indicators.