What the repo rate is
The policy repo rate is the rate at which the Reserve Bank of India lends to banks overnight under its liquidity adjustment facility, against government securities as collateral. Two other rates are tied to it: the standing deposit facility rate, which the Bank pays on money banks leave with it overnight, and the marginal standing facility rate, at which banks can borrow in an emergency. Both sit a fixed distance from the repo rate, so the repo rate sits in the middle of the corridor and overnight money market rates trade close to it. The Bank's monetary policy framework sets out how each works.
The rate is decided by the Monetary Policy Committee, a body of six created under Section 45ZB of the Reserve Bank of India Act: three from the Bank, including the Governor, and three appointed by the central government. The law requires it to meet at least four times a year; in practice it meets every two months, on a schedule published at the start of each financial year on the Monetary Policy Statements page. Its task is the inflation target the government sets: 4 percent consumer price inflation, with a tolerance band of 2 to 6 percent. Each decision is announced in a resolution on the last day of the meeting and takes effect immediately.
How a change reaches your home loan
Most home loans in India are on floating rates, and how fast a repo change reaches you depends on the benchmark your loan is linked to.
- External benchmark loans. Since 1 October 2019 the Bank has required banks to link every new floating-rate retail loan, housing loans included, to an external benchmark such as the repo rate, and to reset the rate at least once every three months. On a repo-linked loan your rate is the repo rate plus a spread fixed in your agreement, so a change usually reaches you at the next reset.
- MCLR and older loans. Loans taken before October 2019 are often linked to the bank's marginal cost of funds based lending rate (MCLR) or an older base rate. These follow the repo rate more slowly and reset on dates set in the loan, commonly once a year. You can usually ask to move to an external benchmark.
- Housing finance companies are not bound by the external benchmark rule and set their own reference rates.
When a rate resets on an EMI-based loan, the Bank's 2023 circular requires your lender to let you choose between a higher EMI, a longer tenure or a mix of both, and to offer a switch to a fixed rate under its policy. Try the new rate in the mortgage calculator to see both effects: a longer tenure keeps the EMI down but adds interest. The loan calculator and car loan calculator work the same way for other floating-rate loans.
How it reaches your savings
Banks set their own deposit rates, and fixed deposit rates tend to follow the repo rate with a lag, since a bank reprices its deposits as it needs funding. A fixed deposit keeps the rate it was opened at until maturity, so locking in before a cut protects your return, and a cut does not reach deposits you already hold. Savings account rates are also set by each bank and usually move less.
The savings goal calculator and the compound interest calculator take the rate your account or fixed deposit pays, not the repo rate.
Reading the chart and the table
The chart draws the repo rate as steps, because it stays where the committee set it until the next change. The table lists every change since 12 June 2008, the first repo rate row in Table 40 of the Bank's Handbook of Statistics on the Indian Economy, newest first. The Handbook dates each change the day it took effect; decisions after its latest edition come from the committee's resolutions and are checked against the rate on the Bank's home page.
The committee has set the rate only since October 2016; earlier changes were the Governor's decisions. Until May 2011 the Bank also moved the reverse repo rate on its own, so the repo rate alone did not describe policy; since then it has been the single policy rate. Some changes, including 27 March 2020, 22 May 2020 and 4 May 2022, came from meetings held outside the usual schedule. Meetings at which the rate was held are not listed, because nothing changed. The weighted average lending rate tracker shows what banks actually charge on new loans.