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What is 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).

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 is known as the reverse repo rate.

Commercials 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.

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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:

  1. 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.
  2. 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.


Recentlty Updated

What is the Current Repo Rate?

The Reserve Bank of India last revised its rates on 4 May 2022, following which some specific rates have changed.

Interest Rate Type Current Rate Last Updated On
Repo Rate 4.90% 4 May 2022
Marginal Standing Facility 4.65% 4 May 2022

Note: The information is updated as per the Press Release dated 4 May 2022.

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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, currently at 4.90%. It lends a degree of transparency to borrowers, letting them monitor one of the factors that dictate any increase or decrease in their Home 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. 

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