Current Repo Rate & Reverse Repo Rate
Current repo rate is at 6.50%
Current reverse repo rate is at 3.35%
Latest Update: 9th October 2024 – The RBI has kept the Repo rate unchanged at 6.50% for the tenth time.
Reserve Bank of India Lends money to Commercial Banks at Repo rate, i.e. Reserve Bank of India (RBI) to maintain liquidity, in case of shortage of funds or due to some statutory measures. It is one of the main tools of RBI to keep inflation under control.
Click here to read about: Cash Reserve Ratio (CRR) & Statutory Liquidity Ratio (SLR)
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).
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.
The following table shows the most recent repo rates maintained by the Reserve Bank of India:
Date of Update | Rate |
9th October 2024 | 6.50% |
8th August 2024 | 6.50% |
7th June 2024 | 6.50% |
5th April 2024 | 6.50% |
8th February 2024 | 6.50% |
8th December 2023 | 6.50% |
10th August 2023 | 6.50% |
8th June 2023 | 6.50% |
6th April 2023 | 6.50% |
8th February 2023 | 6.50% |
7th December 2022 | 6.25% |
30 September 2022 | 5.90% |
8 June 2022 | 4.90% |
4 May 2022 | 4.40% |
22 May 2020 | 4.00% |
27 March 2020 | 4.40% |
04 October 2019 | 5.15% |
07 August 2019 | 5.40% |
06 June 2019 | 5.75% |
01 August 2018 | 6.50% |
06 June 2018 | 6.25% |
02 August 2017 | 6.00% |
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.
For investors looking for fixed deposits with low risk and competitive rates, the repo rate increase may be highly beneficial.
FDs are expected to appreciate in value as investments. Bank lending and deposit rates will be impacted by changes to the RBI’s policy repo rate. The decisions on the actual rate adjustments would be made by the various banks and NBFCs.
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.
Below are the parameters on the basis of which the RBI agrees to execute the transaction with the banks:
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. It also increases the overall supply of money in the economy. This ultimately boosts the growth rate of the economy.
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.
Repo Rate | Reverse Repo Rate |
It is the rate at which RBI lends money to banks | It is the rate at which RBI borrows money from banks |
It is higher than the reverse repo rate | It is lower than the repo rate |
It is used to control inflation and deficiency of funds | It is used to manage cash-flow |
It involves the sale of securities which would be repurchased in future. | It involves the transfer of money from one account to another. |
RBI keeps changing the repo rate and the reverse repo rate according to changing macroeconomic factors. Whenever RBI modifies the rates, it impacts all sectors of the economy; albeit in different ways. Some segments gain as a result of the rate hike while others may suffer losses. RBI maintains the repo rate at 6.5% without any changes. The reverse repo rate remains unchanged at 3.35%.
Changes in the repo rates can directly impact big-ticket loans such as home loans. The decrease in repo rates is to aim at bringing in growth and improving economic development in the country. Consumers will borrow more from banks thus stabilizing the inflation.
A decline in the repo rate can lead to the banks bringing down their lending rate. This can prove to be beneficial for retail loan borrowers. However, to bring down the loan EMIs, the lender has to reduce its base lending rate. As per the RBI guidelines, banks/financial institutions are required to transfer the benefit of interest rate cuts to consumers as soon as possible.