RBI Repo Rate: India's Policy Interest Rate
Repo rate is the interest rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks against the collateral of government securities, set by the Monetary Policy Committee (MPC) typically every 2 months as the primary policy interest rate.
MPC structure and frequency: Monetary Policy Committee has 6 members — 3 from RBI (including Governor as chair) and 3 external members appointed by Government of India for 4-year terms. Decisions are made by majority vote, with Governor's casting vote in case of tie. MPC meets bi-monthly (6 times per FY). Decisions are announced at the end of each meeting along with monetary policy statement and updated growth/inflation projections.
Recent rate trajectory (indicative): 6.50% (Feb 2023 - Jun 2024 plateau after rate hikes), 6.50%-6.25% range during FY 2024-25, with cuts beginning early 2025 as inflation moderated within RBI's 4% ± 2pp target band. Repo rate corridor: SDF (Standing Deposit Facility) typically 25 bp below repo, MSF (Marginal Standing Facility) 25 bp above. Reverse repo discontinued as a tool in April 2022.
Transmission: changes in repo rate flow to banks' MCLR (Marginal Cost of Funds based Lending Rate) and external benchmark-linked rates (most home loans since October 2019 are EBLR-linked, repriced quarterly). Fixed deposit rates also adjust, generally with a lag. Higher repo rate = costlier loans + higher FD rates; lower repo = cheaper loans + lower FD returns. Equity markets typically rally on rate cuts (lower discount rates increase present value of future earnings).
Richify Tip
Home loan EMI for floating-rate loans repriced at the EBLR reset cycle (quarterly for most banks). A 25 bp repo cut could lower EMI by about ₹150-200 per ₹1 lakh principal over a 20-year tenure. FD investors should be aware that if they expect rate cuts, locking in longer tenures at current rates might preserve higher yield. RBI's stance — Accommodative, Neutral, Withdrawal of Accommodation — signals direction of future moves.
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