Current Repo Rate in India
The current repo rate today is 6.50%*, according to the latest announcement by the Reserve Bank of India (RBI), made on June 8, 2023, which keeps the repo rate unchanged as The Monetary Policy Committee (MPC) unanimously decided.
The reverse repo rate stands unchanged at 3.35%. The Bank Rate and the Marginal Standing Facility (MSF) rate have changed to 6.75%. The Standing Deposit Facility Rate is 6.25%. But what does the repo rate actually mean?
What is the meaning of Repo Rate?
To understand Repo Rate meaning better, here is a breakup of the words. The word ‘repo’ is derived from the phrases ‘Repurchasing Option’, or ‘Repurchasing Agreement’. Repo rate refers to the rate at which commercial banks borrow money from the RBI against security and bond collaterals. The assets are later repurchased from the apex bank at a predetermined price, as the name indicates. Similarly, when the RBI borrows from commercial banks, the interest charges are known as the reverse repo rate.
The Reserve Bank of India’s monetary policy helps regulate the cash flow within the economy, using several instruments, such as the repo rate, reverse repo rate, statutory liquidity ratio (SLR) and marginal standing facility (MSF).
Commercial banks resort to borrowing from the RBI to tide over a fund crisis, seeking short-terms loans, sometimes over a span of just 24 hours.
What is the Current Repo Rate?
The Reserve Bank of India last revised its rates on 8 June 2023, following which some specific rates have changed.
| Interest Rate Type | Current Rate | Last Updated On |
|---|---|---|
| Repo Rate | 6.50%* | 8 June 2023 |
Note: The information is updated as per the Press Release dated 8 June 2023.
RBI Repo Rate History: 2014 - 2023
The following table shows the recent repo rates maintained by the RBI:
| Last Update | Repo Rate |
|---|---|
| 08-June-2023 | 6.50%* |
| 08-Feb-2023 | 6.50%* |
| 07-Dec-2022 | 6.25% |
| 30-Sep-2022 | 5.90% |
| 08-Jun-2022 | 4.90% |
| 13-May-2022 | 4.40% |
| 04-Dec-2020 | 4% |
| 09-Oct-2020 | 4% |
| 06-Aug-2020 | 4% |
| 22-May-2020 | 4% |
| 27-Mar-2020 | 4.40% |
| 06-Feb-2020 | 5.15% |
| 05-Dec-2019 | 5.15% |
| 10-Oct-2019 | 5.15% |
| 07-Aug-2019 | 5.40% |
| 06-June-2019 | 5.75% |
| 04-Apr-2019 | 6.00% |
| 07-Feb-2019 | 6.25% |
| 01-Aug-2018 | 6.50% |
| 06-June-2018 | 6.25% |
| 02-Aug-2017 | 6.00% |
| 04-Oct-2016 | 6.25% |
| 05-Apr-2016 | 6.50% |
| 29-Sept-2015 | 6.75% |
| 02-June-2015 | 7.25% |
| 04-Mar-2015 | 7.50% |
| 15-Jan-2015 | 7.75% |
| 28-Jan-2014 | 8.00% |
How Does Repo Rate Work?
Repo rate or repurchase rate is the interest rate at which the central bank of India (RBI) lends money to commercial banks for meeting short-term fund requirements to maintain liquidity and control inflation. During high inflation, RBI increases the Repo rate thereby discouraging borrowing by businesses which in turn slows down the investment activities in the economy and reduces the supply of money in the market. Besides inflation, you can see an increased repo rate when there is a risk of currency depreciation in the country. Alternatively, during a high recession, the repo rates are decreased to encourage borrowing and increase the flow of money in the market. The repo rate today as of June 2023 is 6.50%* .
What is the Impact of the Repo Rate on the Economy?
The repo rate effectively determines the volume of liquidity in the economy. An increase in the repo rate will cost lenders more – the impact of which is passed to regular borrowers. When the RBI wants to pump up the cash circulation in the economy, the repo rate will likely be reduced to incentivise borrowing and cash expenditure. The repo rate affects the economy in the following ways:
- Combats Inflation: The repo rate and inflation have an inverse relation; an increase in the rate ensures a limited circulation of cash in the economy, attempting to control the rise in inflation.
- Boosts Liquidity: On the other hand, when there is a dire need for cash liquidity in the economy, a slash in the repo rate helps by promoting a cheaper cost of borrowing and investments.
The Impact of Repo Rate Rise on Individuals
- Effect on savings - Individuals having savings and fixed deposits will enjoy higher rates and returns when the Repo Rate increases.
- Effect on borrowing - A rise in the present Repo Rate will lead to decreased borrowing power as the lending rates increase.
- Effect on mortgage rates - A hike in Repo Rate means all existing home loans with floating rates of interest are likely to become expensive, as banks may decide to pass on the hike to customers. This will inevitably lead to an increase in the equated monthly instalments (EMIs) on home loans for buyers.
What is Repo Rate Linked Home Loans?
When borrowers link their Home Loan interest rates to the RBI repo rate, they link their interest rate to a benchmark external to the lender. Here are two components of a repo rate linked Home Loan:
- The Repo Rate: Borrowers can link their Home Loan to the RBI repo rate, which is currently at 6.50%*. It lends a degree of transparency to borrowers, letting them monitor one of the factors that dictate any increase or decrease in their Housing Loan interest rate.
- The Spread: This is the additional margin lenders charge on top of the repo rate to determine the final Home Loan interest rate. While the repo rate is fixed at the national level, the spread is determined based on the individual’s profile, considering the risk factors attached to your Home Loan application.
Bajaj Housing Finance offers attractive repo rate linked Home Loans to eligible applicants. Apply today to benefit from our attractive lending terms.
*Terms and conditions apply.
Frequently Asked Questions
The reverse repo rate is a tool in the RBI’s monetary policy that is helps regulate the country’s cash supply. The reverse repo rate controls the rate at which the central bank borrows money from commercial banks. The current Reverse Repo Rate as per the RBI is 3.35%
When the RBI lowers the repo rate, commercial banks can enjoy lowered borrowing costs, and the benefit will be passed along to customers. Homeowners’ interest rates are lowered as a result. Similar to this, when the repo rate rises, banks also experience an increase in borrowing costs, which results in an increase in the interest rate on home loans.
The Marginal Cost of Funds Based Lending Rate or MCLR is the minimum lending rate below which a bank cannot lend. The Reserve Bank of India introduced the MCLR on April 1, 2016, for determining the interest rates for loans. It replaced the base rate system which was previously used to decide a commercial bank’s lending rates. Basically, banks take into account MCLR before deciding the maximum interest rate they can charge for loans.
Repo Rate:
The term repo rate stands for repurchasing option rates or repurchasing agreement rates. Similar to other borrower, banking institutions are also required to pay interest on the money that they borrow from the central bank, and they will do so by pledging their securities such as gold or treasury bills to the RBI in exchange for availing an overnight loan to tackle their cash flow shortage. The repo rate is also used to control inflation in the economy.
Reverse Repo Rate:
The interest that the RBI must pay when borrowing money from financial institutions is known as the reverse repo rate. The reverse repo rate regulates liquidity in the market in order to reduce inflation. With a higher interest rate, banks are more likely to lend money to the RBI, which helps reduce the market's surplus liquidity.
| Type | Rate |
|---|---|
| Repo Rate | 6.50%* |
| Reverse Repo Rate | 3.35% |
Higher repo rates make it more expensive for banking institutions to borrow money from the RBI, which reduces market liquidity and controls inflation.
Although both rates are short term tools used by the RBI to lend loans and control the cash flow in the market, there are certain differences between them. Here is the difference between the bank rate and the repo rate.
-
The short-term loans lent by central bank to the commercial banks to help with urgent cash-crunch are based on bank rates whereas the long-term loans are based on the Repo Rate.
-
Bank Rate is charged against loans offered by the central bank to commercial banks, while the Repo Rate is charged for repurchasing the securities sold by the commercial banks to the central bank.
-
Bank rates are offered without collateral whereas commercial banks pledge securities as collaterals for Repo Rate.
An increase in Repo Rate occurs when the central bank intends to control inflation or increase the liquidity of banks. The RBI increases the Repo Rate when they need to control prices and restrict borrowings.
The direct effect of a Repo Rate hike is increased rate of interest on Home Loans as both are directly linked. An increase in Repo Rate means commercial banks have to pay more interest to the central bank from where they borrow their money and therefore, it eventually affects Home Loans leading to increased EMIs and/or loan tenors.
