Current Repo & Reverse Repo Rate 2025: Meaning, Impact & History

The Reserve Bank of India (RBI) lends money to Commercial Banks at a Repo Rate, helping banks maintain their liquidity in case of a shortage of funds or meeting regulatory requirements. As of April 9th, 2025, the Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points (bps), bringing it down to 6.00%. The reverse repo rate remains unchanged at 3.35%. This move marks the second rate cut of the year, with the previous cut occurring in February 2025.

Current Repo Rate in India 2025

As of April 9th, 2025, the RBI had announced a 25 bps reduction in the repo rate, bringing it down to 6%. This is the second cut of the year, followed by a similar reduction in February.

Due to growing global economic uncertainties, the new US tariffs have impacted trade flows internationally. The members of the Monetary Policy Committee (MPC) have collectively decided to bring down the repo rate to 6%, as it is expected to encourage lending and investment, stimulate demand, and strengthen overall economic activity.

What is BPS or Basis Point?

Basis points, also referred to as “bps” are a unit of measurement used in finance to express the rate of change in an index or other benchmark or the percentage change in the value of financial instruments. In decimal notation, one basis point is equal to 0.0001 or 0.01% (1/100th of a percent).

How Does Repo Rate Work?

When you borrow money from the bank, the transaction attracts interest on the principal amount. This is referred to as the cost of credit. Similarly, banks also borrow money from RBI during a cash crunch on which they are required to pay interest to the Central Bank. This interest rate is called the repo rate.

Technically, repo stands for ‘Repurchasing Option’ or ‘Repurchase Agreement’. It is an agreement in which banks provide eligible securities such as Treasury Bills to the RBI while availing overnight loans. An agreement to repurchase them at a predetermined price will also be in place. Thus, the bank gets the cash and the central bank the security.

RBI Repo Rate History

The following table shows the most recent repo rates maintained by the Reserve Bank of India:

Impacts of the Repo Rate Cut

How Does Repo Rate Affect Home Loan?

Buyers who take out a house loan tied to repo rates or those who move from their existing home loans to it need to understand certain details about these loans. Transmissions are faster. Any adjustments to the repo rate will likely be reflected in your EMI outlay considerably more quickly. This also implies that your house loan EMI would rise if the banking authority modifies its benchmark lending rate.

Additionally, banks will finally decide how much extra interest they will add to the repo rate on mortgages. With the latest Repo rate cut in 2025 to 6%, interest rates and Equated Monthly Instalments (EMIs) on home, vehicle, and personal loans will decrease, thereby making it easy for borrowers to repay their debts.

How Does Repo Rate Affect Fixed Deposits (FDs)?

The repo rate increase may be highly beneficial for investors looking for fixed deposits with low risk and competitive rates. FDs are expected to appreciate in value as investments. Changes to the RBI’s policy repo rate will impact bank lending and deposit rates. The various banks and NBFCS will make the decisions on the actual rate adjustments.

Following the 25 bps repo rate cut in April 2025, several major banks have adjusted their FD interest rates downward. 

How Does Repo Rate Affect the Stock Market?

Interest rates and the stock market are inversely related. Every time the Central Bank raises the repo rate, the stock markets are immediately affected.

This means that the increase in the repo rate causes businesses to reduce their expenditure on expansion, which slows down growth, has an impact on profits and future cash flows, and causes stock prices to drop.

How Does Repo Rate Affect the Economy?

Repo rate is a powerful arm of the Indian monetary policy that can regulate the country’s money supply, inflation levels, and liquidity. Additionally, the levels of repo have a direct impact on the cost of borrowing for banks. Higher the repo rate, higher will be the cost of borrowing for banks and vice-versa.

Rise in inflation

During high levels of inflation, RBI makes strong attempts to bring down the flow of money in the economy. One way to do this is by increasing the repo rate. This makes borrowing a costly affair for businesses and industries, which in turn slows down investment and money supply in the market. As a result, it negatively impacts the growth of the economy, which helps in controlling inflation.

Increasing Liquidity in the Market

On the other hand, when the RBI needs to pump funds into the system, it lowers the repo rate. Consequently, businesses and industries find it cheaper to borrow money for different investment purposes. When the repo rate is decreased, banks tend to lend more making credit more accessible for businesses. It also increases the overall supply of money in the economy. This ultimately boosts the growth rate of the economy.

What are the Components of a Repo Transaction?

Below are the parameters on the basis of which the RBI agrees to execute the transaction with the banks:

• Preventing Economy “squeezes” – The Central bank increases or decreases the Repo rate depending on the inflation. Thus, it aims at controlling the economy by keeping inflation in the limit.
• Hedging & Leveraging – RBI aims to hedge and leverage by buying securities and bonds from the banks and provide cash to them in return for the collateral deposited.
• Short-Term Borrowing – RBI lends money for a short period of time, maximum being an overnight post which the banks buy back their securities deposited at a predetermined price.
• Collaterals & Securities – RBI accepts collateral in the form of gold, bonds, etc.
• Cash Reserve (or) Liquidity – Banks borrow money from RBI to maintain liquidity or cash reserve as a precautionary measure.

What is Meant by Reverse Repo Rate?

Reverse Repo Rate is a mechanism to absorb the liquidity in the market, thus restricting the borrowing power of investors.

Reverse Repo Rate is when the RBI borrows money from banks when there is excess liquidity in the market. The banks benefit out of it by receiving interest for their holdings with the central bank.

During high levels of inflation in the economy, the RBI increases the reverse repo. It encourages the banks to park more funds with the RBI to earn higher returns on excess funds. Banks are left with lesser funds to extend loans and borrowings to consumers.

What is the Difference Between Repo Rate and Reverse Repo Rate?

Read about: Cash Reserve Ratio (CRR) & Statutory Liquidity Ratio (SLR)