What is the repo rate, and what is the reverse repo rate in India?
Short answer
The repo rate is the interest rate at which the Reserve Bank of India lends short-term money to banks against government securities. The reverse repo rate is the rate at which the RBI borrows money from banks.
Most relevant for: भारत (India)
Repo: a loan against securities
"Repo" is short for repurchase agreement. A bank sells government securities to the Reserve Bank of India (RBI) and agrees to buy them back later at a higher price. The difference works as interest, and the annualised rate is the repo rate.
The repo rate is the RBI’s main policy rate. It is set by the Monetary Policy Committee (MPC), a six-member body that meets at least four times a year and also has a formal inflation target to work towards.
Reverse repo: the RBI as borrower
In a reverse repo, the roles flip: banks place surplus funds with the RBI and receive government securities as collateral. The RBI pays the reverse repo rate on those funds. Absorbing money this way reduces liquidity in the banking system.
Since 2022 the policy corridor has had the Standing Deposit Facility (SDF) rate as its floor and the Marginal Standing Facility (MSF) rate as its ceiling, with the repo rate in between. The fixed-rate reverse repo remains available at the RBI’s discretion. Current levels are published on the RBI website and change with each policy decision.
Why it matters to borrowers and savers
Banks’ borrowing costs follow the repo rate, so it feeds into lending rates. Many floating-rate loans in India are linked to an external benchmark such as the repo rate, which means the interest on those loans can change when the rate changes. Fixed-rate loans are not affected until they are refinanced.
The repo rate also influences deposit rates and government bond yields. How much and how quickly each moves varies by bank and market conditions.