What is Repo Rate?
The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks against government securities. It is the RBI's primary tool for controlling inflation and money supply in the economy.
When the RBI raises the repo rate, banks' own borrowing costs rise, and they typically pass this on as higher interest rates on floating-rate home loans, car loans, and FDs. When the RBI cuts the repo rate, EMIs on floating-rate loans usually fall over the following months.
Most floating-rate home loans in India are now linked to an External Benchmark Lending Rate (EBLR) tied directly to the repo rate, so RBI rate decisions flow through to borrowers' EMIs faster than under the older base-rate system.
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