What is the Repo Rate? Current Rate, RBI Updates & Its Impact

What is Repo rate, and why is it crucial? It is important to understand its effect on people involved in the loaning ecosystem, from lender to borrower and everyone in between. 

To explain it shortly, the Repo rate is the primary tool for the Reserve Bank of India (RBI) to control liquidity, inflation, and maintain overall economic stability. 

So, in this blog, I will walk you through its meaning and how it affects the borrowers and the banks of India. I will also help you to learn the difference between Repo rate and bank rates. 

What is Repo Rate?

The Repo rate is the short form for repurchase agreement rate, and it is the interest rate at which the RBI lends money to commercial banks. Therefore, in such an arrangement, banks sell securities to the RBI with an arrangement to purchase them again at a pre-set date and price.

This allows the banks to meet short-term liquidity needs. At the same time, it helps the RBI to manage inflation and ensure that an adequate money supply is made in the economy. 

Present Repo Rate in India: 2025

According to the Groww report, the RBI Repo rate, as of April 9th, 2025, is 6.00%. This rate has come as a reduction from the previous rate, which was 6.25%. This is the second time in two consecutive years that the RBI has cut its repo rate. The central bank is doing this to support the economy during uncertain times around the country.

RBI Repo Rate – How It Impacts Borrowers and Banks

The present Repo report in India affects both borrowers and banks. However, this happens in different ways. For example, with lowered Repo rates, borrowers can apply for a loan at a more affordable price. On the other hand, a reduced Repo rate will allow the banks to access funds at a lower cost and improve their liquidity position. 

Find out more about it.

For Borrowers

• Reduced Loan Interest Rates: Lower repo rate will decrease the cost at which banks borrow money from the RBI. Therefore, this reduction often lets banks to lower their interest rates, making education and other loans available to consumers. 
• Lower EMIs: Borrowers with floating interest rate loans, such as education loans or auto loans, experience a sudden decrease in their monthly EMIs. This happens because banks adjust their rates in response to the repo rate cuts. 

For Banks

• Enhanced Liquidity: A reduced repo rate allows banks to purchase funds at a much lower cost. This, in turn, improves their liquidity position in the market. 
• Increased Lending Capacity: When banks buy funds at a more affordable price, they find themselves in a better position in terms of finances. Therefore, they can provide better credit to customers and stimulate economic activity. 

Repo Rate vs Bank Rate – What’s the Difference?

So, if the interest rate is set solely by the RBI, and it’s so low, then why do bank rates start from 9% minimum? For this, you must understand their difference and how they impact the borrower. So take a look:

What is Reverse Repo Rate, and How is it Different from Repo Rate?

The concept of reverse repo rate is when the RBI borrows money from commercial banks. This tool is used to absorb excess liquidity from the banking system and help the country maintain monetary stability. 

Now, let’s find out what is repo rate and reverse repo rate are, and find their key differences:

Key Differences:

Direction of Transaction:

• Repo Rate: The RBI lends to the bank
• Reverse Repo Rate: The bank lends to the RBI.

Purpose:

• Repo Rate: Helps with liquidity in the banking system. 
• Reverse Repo Rate: Absorbs extra liquid from the banking system to maintain balance.

Interest Rate Level:

• The reverse repo rate is always lower than the repo rate. This has been done to encourage banks to lend more rather than park funds with the RBI. 

Repo Rate Vs Spread Rate

To understand the difference between Repo rate and Spread rate, you first need to understand the meaning of Spread rate. Spread rate is the difference between the interest rate charged by the bank and the interest it pays to the depositors, i.e., the RBI. 

Therefore, for example, if the Repo rate is 6.00% now, and the bank charges you 9.00%, the 3.00% difference is the spread rate. 

By the definition, it’s clear that Spread and Repo rates are two completely different elements of the financial arc. However, there are some other major differences that will help you understand how different these two elements are. Find out!

Key Difference

FAQs

• What is the repo rate in India right now?

• As of April 9, 2025, the repo rate in India is 6.00%. On top of it, banks will add a few extra percentages and fix the final interest rate for customers. If you have a higher credit history, you will have better chances of approval. 

• Who decides the repo rate?

• The Monetary Policy Committee (MPC) of the RBI, comprising six members, decides the repo rate. They make these rates after thoroughly observing the results based on macroeconomic indicators and policy objectives.

• How does the repo rate affect loans?

• Based on the Repo rate’s percentage, the banks fluctuate their interest amounts, making the loan tenure affordable or more expensive.. Therefore, it is an extremely important part of a loan applicant’s journey.

• Is the bank rate higher than the repo rate?

Yes, the bank rate is higher than the repo rate. As of April 9, 2025, the Reserve Bank of India (RBI) has fixed the repo rate at 6.00% and the bank rate at 6.25%.

The bank rate is generally higher since it is for long-term, unsecured lending by banks to the RBI. On the other hand, the repo rate is for short-term, backed borrowing. Given this difference in purpose and risk profile, usually, the bank rate is fixed above the repo rate.

Parting Thoughts 

Understanding the meaning of repo rate is easy, and it is also extremely important if you want to apply for an education loan. Therefore, now that you know what is repo rate is, you are more aware of RBI’s involvement, and how the bank is striving hard to maintain a balance in the economy, and maintain a proper structure.