Repo Rate full form is Repurchase Agreement or Repurchasing Option. Banks obtain loans from the Reserve Bank of India (RBI) by selling qualifying securities. The current Repo rate in India is 5.50%, as announced by RBI's Governor Sanjay Malhotra on 6 August 2025 in the RBI MPC Meeting.
What is the repo rate? The repo rate is short for repurchase rate, which is the rate at which the South African Reserve Bank (SARB) lends money to banks, and it plays a role in monetary policy.
What is the difference between interest rate and repo rate?
A rise in the repo rate generally leads to an increase in the cost of borrowing, pushing banks to raise interest rates for various products like personal loans, mortgages, and home loans. Conversely, a drop in the repo rate can reduce borrowing costs, benefiting consumers through lower loan rates.
A decrease in the repo rate lowers banks' borrowing costs, which can reduce consumers' and firms' lending rates. Banks may lower interest on savings and FDs, reducing earnings for savers and retirees. Borrowers taking loans, like home or personal loans, can benefit from reduced EMIs.
Repurchase Agreements (Repo) & Reverse Repurchase Agreements (Reverse Repo) Explained in One Minute
Is the repo rate the same as the prime rate?
The South African Reserve Bank (SARB) lends money to South African banks at a rate known as the repo rate. Banks lend money to their clients at a rate called the prime interest rate. The prime interest rate is linked to the repo rate. So, when the repo rate changes, the prime interest rate also changes.
The bank rate is higher than the repo rate because it applies to long-term, unsecured borrowing by banks from the RBI. In contrast, the repo rate is for short-term, collateral-backed borrowing. The higher bank rate discourages excessive long-term borrowing, aiding in inflation and liquidity management.
Tenure for loans taken at a repo rate can be granted within one day time period. But when it comes to the loans at the bank rate, these rates have a time frame of around 28 days. Both the repo and bank rates are the rates that RBI usually lends the loan.
Controlling Inflation: One of the primary reasons central banks use the repo rate is to control inflation. When the economy is growing too fast, and prices are rising too quickly, the central bank may raise the repo rate. This makes borrowing more expensive, which can slow down spending and reduce inflation.
The repo rate, also known as the repurchase rate, is the rate at which the South African Reserve Bank lends money to the banks. The banks, in turn, lend money to their clients. And the prime lending rate is a rate the banks use as a benchmark for setting interest rates when lending that money.
The rate of interest charged by the central bank on the cash borrowed by commercial banks is called the "Repo Rate". For example: If the Repo Rate is 10% and the loan amount borrowed by a commercial bank from RBI is Rs 10,000, then the interest paid to the RBI will be Rs 1,000.
Key Takeaways. Interest rates and bank profitability are connected, with banks benefiting from higher interest rates. When interest rates are higher, banks make more money by taking advantage of the greater spread between the interest they pay to their customers and the profits they earn by investing.
The repo rate is the interest rate at which the RBI lends money to commercial banks. A reduction in this rate lowers the cost of borrowing for banks, which can lead to decreased interest rates on loans and deposits for consumers.
The prime rate is then used as a reference point, known as an index, by financial institutions and set interest rates based on that index often adding a margin based on the borrower's credit history and other financial details and what kind of risk that poses for the lender.
As per the announcement made by the Reserve Bank of India (RBI) on 06 June 2025, the current Repo Rate is 5.50%*. The Reverse Repo Rate is 3.35%. The Bank Rate and the Marginal Standing Facility (MSF) rate stand at 5.75%. The Standing Deposit Facility Rate is 5.25%.
High inflation is bad for you because it can lead to an unsustainable and wild economic environment where the cost of products outpaces your paycheck. Low inflation means an economy is stagnating and paychecks may fall, making it harder for you to spend.
However, when the RBI lowers rates, banks still have to pay higher interest on deposits they've already taken from customers (like fixed deposits). This means their overall cost of funds doesn't drop as quickly. As a result, they pass on the benefits of rate cuts slowly, if at all.
