| RBI Rate | Meaning | Who Uses It | Purpose |
| Repo Rate | Rate at which RBI lends money to commercial banks | Banks borrow from RBI | Controls inflation and overall borrowing cost |
| Reverse Repo Rate | Rate at which RBI borrows money from banks | Banks park surplus funds with RBI | Absorbs excess liquidity from the system |
| Standing Deposit Facility (SDF) | Rate at which banks deposit money with RBI without collateral | Banks | Liquidity absorption without securities |
| Marginal Standing Facility (MSF) | Emergency borrowing rate above repo rate | Banks | Short-term liquidity during emergencies |
| Bank Rate | Long-term lending rate of RBI | Banks & financial institutions | Benchmark for long-term policy stance |
Index
Current Repo & Reverse Repo Rate 2026: Meaning, Impact & History
The Reserve Bank of India (RBI) uses the repo rate as a key monetary policy tool to manage inflation, liquidity, and economic growth. As per the latest Monetary Policy Committee (MPC) decision (February 2026), the current repo rate is 5.25%, and the policy corridor rates remain unchanged.
Key Highlights
- Repo Rate (Feb 2026): 5.25% (unchanged since the RBI MPC meeting in December 2025)
- Inflation Projection for FY26: Lowered to 2%
- Reverse Repo Rate: 3.35%
- Policy Corridor Rates: SDF 5.00%, MSF 5.50%, Bank Rate 5.50%
What is Repo Rate?
The repo rate is the interest rate at which commercial banks borrow money from the RBI by pledging government securities as collateral. It directly influences lending rates, EMIs, and overall credit availability in the economy. Repo stands for ‘Repurchasing Option’ or ‘Repurchase Agreement’.
Changes in the repo rate influence borrowing costs across the economy:
- Lower repo rate: Banks borrow cheaper → loans and EMIs may fall
- Higher repo rate: Borrowing becomes expensive → credit slows down
Current RBI Policy Rates
Refer to the following table for the current rates:
| RBI Policy Rate | Rate |
| Repo Rate | 5.25% |
| Standing Deposit Facility (SDF) | 5.00% |
| Marginal Standing Facility (MSF) | 5.50% |
| Bank Rate | 5.50% |
Note: SDF generally acts as the floor of the policy corridor, while MSF acts as the ceiling around the repo rate.
What is Reverse Repo Rate?
The reverse repo rate is the rate at which the RBI borrows money from commercial banks for short periods.
Banks park surplus funds with RBI at this rate when liquidity in the banking system is high. While reverse repo remains relevant, RBI now primarily uses the Standing Deposit Facility (SDF) to absorb excess liquidity.
How does Repo Rate Work?
| Step | Effect |
| RBI Sets Repo Rate | The Reserve Bank of India decides the repo rate during Monetary Policy Committee meetings. |
| Banks Borrow from RBI | Commercial banks borrow short-term funds from RBI by pledging government securities. |
| Cost of Borrowing Changes | When repo rate changes, banks’ borrowing costs increase or decrease. |
| Banks Adjust Lending Rates | Banks may change interest rates on loans and deposits accordingly. |
| Impact on Economy | Changes influence loan EMIs, investment, spending, and overall economic activity. |
Repo vs Other RBI Rates
Apart from the repo rate, the RBI uses several other policy rates to regulate liquidity and control monetary conditions in the economy.
| Year | Repo Rate (%) |
| Feb 2026 | 5.25 |
| Dec 2025 | 5.25 |
| Aug 2025 | 5.50 |
| Jun 2025 | 5.50 |
| Apr 2025 | 6.00 |
| Feb 2025 | 6.25 |
| Dec 2024 | 6.50 |
| 2023–2024 | 6.50 |
| 2022 | 6.25 |
| 2021 | 4.00 |
| 2020 | 4.00 |
| 2019 | 5.15 |
| 2018 | 6.25 |
| 2017 | 6.25 |
| 2016 | 6.50 |
| 2015 | 7.50 |
Impact of Repo Rate Cut
| Impact | Effect |
| Lower Borrowing Costs | A decrease in the repo rate lowers banks' borrowing costs, which can reduce lending rates for consumers and businesses. |
| Lower Deposit Returns | Banks may reduce interest rates on savings accounts and fixed deposits, lowering returns for savers. |
| Cheaper Loans | Borrowers may benefit from lower EMIs on home loans, personal loans, and other credit products. |
| Inflationary Pressure | Increased spending and demand may push prices higher if supply does not keep pace. |
| Increased Credit Flow | Lower borrowing costs may encourage banks to lend more, increasing spending and investment in the economy. |
| Pressure on Bank Margins | If lending rates decline while deposit rates remain unchanged, banks’ profit margins may shrink. |
| Support for Economic Growth | Lower interest rates can encourage business expansion, consumption, and job creation. |
| Currency Volatility | Lower interest rates may affect foreign investment flows and put pressure on the Indian rupee. |
Impact of Repo Rate Changes on Loans, Deposits, and the Economy
Changes in the repo rate affect loans, deposits, markets, and economic growth by altering liquidity and borrowing costs.
How does Repo Rate Affect Home Loan?
- Faster transmission: Repo-linked home loans reflect repo rate changes quickly.
- Lower repo rate: Banks may reduce lending rates, which can lower EMIs or shorten the loan tenure.
- Higher repo rate: Interest rates may increase, leading to higher EMIs.
- Bank The final home loan interest rate depends on the margin added by the bank over the repo rate.
How does Repo Rate Affect Fixed Deposits (FDs)?
- Higher repo rate: Banks may increase FD interest rates to attract deposits.
- Lower repo rate: FD rates may gradually decrease as borrowing becomes cheaper for banks.
- Bank decisions: Actual FD rate changes depend on each bank’s liquidity, funding needs, and market conditions.
How does Repo Rate Affect the Stock Market?
- Higher repo rate: Borrowing becomes more expensive for businesses, which may reduce expansion and investment.
- Lower corporate profits: Higher borrowing costs can impact company profits and future cash flows.
- Market reaction: Rising repo rates may put downward pressure on stock prices, while lower repo rates can support market growth by encouraging investment.
How does Repo Rate Affect the Economy?
- Control of Inflation: When inflation rises, RBI may increase the repo rate. Higher borrowing costs reduce spending and investment, helping control inflation.
- Liquidity in the Economy: When RBI lowers the repo rate, borrowing becomes cheaper for banks and businesses, increasing credit availability.
- Economic Growth: Lower borrowing costs can encourage investment, business expansion, and consumer spending, supporting overall economic growth.
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.
The repo rate is a key monetary policy tool used by the RBI to manage inflation, liquidity, and economic growth. Changes in the repo rate influence loan EMIs, deposit returns, market sentiment, and overall credit flow. Understanding repo rate movements helps borrowers, savers, and investors make informed financial decisions.
Frequently Asked Questions
What is the repo rate?
How does the reverse repo rate differ from the repo rate?
What factors influence changes in repo rate?
What is the current repo rate set by RBI in India for 2025?
How does a change in repo rate affect home loan EMIs?
Does the repo rate impact fixed deposit returns?
Who decides the repo rate in India?
When is the next RBI MPC meeting?
How long does it take for EMI to reduce after repo rate cut?
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