The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money overnight to banks against government securities. It is the RBI’s main lever on interest rates across the economy. When it changes, loans linked to it, including most new floating-rate home loans since October 2019, must reprice within three months. As of 4 October 2026, the repo rate is 5.25%, where it has been since December 2025. The RBI’s next decision is due on 7 October 2026.
This is a general explainer, not financial advice. For decisions about your own loan, speak to your lender or a qualified adviser.
What the repo rate actually is
“Repo” is short for repurchase agreement. A bank that needs cash sells government securities to the RBI and agrees to buy them back the next day at a slightly higher price. The difference works out as interest, and that interest rate is the repo rate. In the RBI’s own definition, it is the rate at which the RBI provides liquidity under the liquidity adjustment facility (LAF) against government and other approved securities.
Banks don’t fund most of their lending this way. But the repo rate anchors the overnight market where banks lend to each other, and other rates price off that: short-term deposit rates, Treasury bill yields and, eventually, loan rates.
The rates around it: SDF, MSF and reverse repo
The RBI runs a “corridor” around the repo rate:
- Standing Deposit Facility (SDF) is the floor. Banks with spare cash can park it with the RBI overnight, without collateral, at 25 basis points (0.25 percentage points) below repo. The SDF was introduced in April 2022 and replaced the fixed-rate reverse repo as the floor.
- Marginal Standing Facility (MSF) is the ceiling. It is a penal rate, 25 basis points above repo, at which banks can borrow overnight in an emergency, including by dipping into their mandatory holdings of government securities up to a set limit.
- Reverse repo is the rate at which the RBI absorbs cash from banks against collateral. Since 2022 the fixed-rate reverse repo, retained at 3.35% when the SDF arrived, has been a tool the RBI uses only at its discretion. Older articles describing reverse repo as the corridor floor are out of date.
- Bank Rate is the rate at which the RBI rediscounts bills. It moves in step with the MSF.
| Rate | Level as of 4 October 2026 |
|---|---|
| Policy repo rate | 5.25% |
| Standing Deposit Facility (floor) | 5.00% |
| Marginal Standing Facility (ceiling) | 5.50% |
| Bank Rate | 5.50% |
Source: RBI Monetary Policy Committee resolution, 5 August 2026.
Who sets it: the Monetary Policy Committee
Since 2016, the repo rate has been set by a six-member Monetary Policy Committee (MPC), not by the RBI Governor alone. Three members are from the RBI: the Governor, who chairs it, the Deputy Governor in charge of monetary policy, and one other RBI officer. The other three are external members appointed by the government. Each member has one vote, and the Governor has a casting vote in a tie. The law requires at least four meetings a year. In practice the MPC meets six times, every two months, on a published schedule (RBI).
The MPC’s job is to hit an inflation target set by the government: 4% consumer price inflation, with a tolerance band of 2% to 6%. The government has kept this target in place through 31 March 2031. The measure is CPI, the consumer price index, which we explain in CPI vs WPI.
The committee also weighs growth. When inflation is comfortably low and growth is soft, it tends to cut. When inflation threatens the band, it tends to hold or raise. Reading India’s GDP numbers alongside inflation tells you most of what the MPC is looking at.
Where the rate stands now
The RBI cut the repo rate through 2025, from 6.50%, where it stood after the December 2024 meeting, to 5.25% at its December 2025 meeting.
At its most recent meeting, on 3–5 August 2026, the MPC voted unanimously to keep the rate at 5.25% with a neutral stance. It noted that headline CPI inflation was 4.4% in June 2026 and projected 5.0% inflation for 2026-27. The next meeting runs from 5 to 7 October 2026 (RBI).
How a repo change reaches your loan
This is where many borrowers get surprised. Whether, and how fast, your EMI moves depends on what your loan is benchmarked to.
Repo-linked loans (EBLR)
Since 1 October 2019, the RBI has required banks to link all new floating-rate personal or retail loans, such as housing and auto loans, and floating-rate loans to micro and small enterprises, to an external benchmark. Most banks chose the repo rate. This is the external benchmark lending rate (EBLR).
Under the circular, a repo-linked loan’s rate is the repo rate plus a spread. Three rules matter:
- The rate must be reset at least once every three months. A repo change therefore reaches your loan within a quarter.
- The credit-risk part of the spread can change only if your credit assessment changes substantially, as agreed in the loan contract.
- Other parts of the spread, such as operating costs, can change only once every three years.
Older loans (MCLR)
Floating-rate loans sanctioned from 1 April 2016 and before October 2019 are mostly priced on the marginal cost of funds based lending rate (MCLR). Each bank calculates its MCLR from its own cost of funds and publishes it every month. Under the RBI Master Direction on interest rates on advances, the loan resets on dates set in the contract, at intervals of one year or less.
MCLR responds to repo changes slowly and only partially. It moves when the bank’s own funding costs move, and the change reaches your loan only on your reset date. The RBI’s EBLR circular says existing MCLR loans continue until repayment or renewal, and lets borrowers switch to an external benchmark.
| Repo-linked (EBLR) | MCLR-linked | |
|---|---|---|
| Benchmark | RBI repo rate (or another approved external rate) | Bank’s internal cost of funds |
| Reset | At least every 3 months | Per contract, at most yearly |
| Speed of pass-through | Fast and direct | Slower and partial |
| Common for | Floating retail and MSE loans since Oct 2019 | Older loans, many corporate loans |
EMI or tenure?
When rates change, a lender can adjust your EMI, your loan tenure, or both. Under a 2023 RBI circular, updated in October 2025,, lenders must explain this at sanction and tell you promptly when an EMI or tenure rises. At reset, they may offer a switch to a fixed rate under their board-approved policy, possibly with charges.
Illustrative example (our calculation, not any bank’s actual pricing): on a ₹50 lakh, 20-year loan at 8.50%, the EMI is about ₹43,391. A 25 basis point rise to 8.75% takes it to about ₹44,186. A 25 basis point cut to 8.25% brings it to about ₹42,603. That is a change of roughly ₹790–800 a month either way, if the lender changes the EMI rather than the tenure.
Why deposit rates move too
Banks fund most of their lending with deposits. When repo-linked loan rates fall, a bank’s interest income falls within a quarter. To protect its margin, it usually trims the rates it offers on new fixed deposits and sometimes on savings accounts.
The reverse happens when the repo rate rises: loan income rises quickly, and banks compete harder for deposits. Because a fixed deposit’s rate is locked for its term, only new deposits and renewals feel the change. Existing borrowers on repo-linked loans feel it within three months.
The point: The repo rate is the RBI’s overnight lending rate to banks, set by the MPC to keep inflation near 4%. It reaches your EMI quickly if your loan is repo-linked, and slowly if it’s on MCLR. Before the next policy announcement, check which benchmark your loan uses and when it resets.
Sources
- Resolution of the Monetary Policy Committee, August 3–5, 2026, Reserve Bank of India
- Monetary Policy Statement 2025-26: Resolution of the MPC, December 3–5, 2025, Reserve Bank of India
- Instruments of monetary policy and the MPC, Reserve Bank of India
- RBI to operationalise Standing Deposit Facility (April 8, 2022), Reserve Bank of India
- External benchmark based lending (circular dated September 4, 2019), Reserve Bank of India
- Master Direction: Interest Rate on Advances, Reserve Bank of India
- Reset of floating interest rate on EMI-based personal loans (August 18, 2023), Reserve Bank of India
- Monetary Policy Statement 2024-25, December 6, 2024, Reserve Bank of India