Repo Rate: What is the Repo Rate, on which the RBI is set to take a decision—and how does it affect you?

RBI Repo Rate: The Reserve Bank of India convenes a meeting of its Monetary Policy Committee (MPC) every two months. During this meeting, several significant financial decisions are taken. Additionally, a decision is made regarding whether or not to make any changes to the Repo Rate.

The next meeting of the RBI's Monetary Policy Committee is scheduled for next month. Prior to this, the meeting was held in February. Now, the question arises: how is the Repo Rate relevant to the common man? Why is it essential for every individual to be informed about it? First, let us understand what the Repo Rate actually is.

What is the Repo Rate?
The Repo Rate is the interest rate at which commercial banks borrow funds from the central bank. Through the Repo Rate mechanism, banks secure short-term loans. It is also based on this rate that the central bank works to keep inflation under control. The central bank—the RBI—holds a Monetary Policy Committee meeting every two months. During this meeting, decisions regarding changes to the Repo Rate are also taken.

How ​​Does Your EMI Decrease?
If the Repo Rate is increased, it becomes more expensive for banks to borrow funds. Consequently, the general public also has to take out loans at higher interest rates.
Conversely, if the Repo Rate is lowered, banks are able to borrow funds at a lower interest rate. As a result, the general public also gains access to loans at lower interest rates, and their Equated Monthly Installments (EMIs) subsequently decrease.

If you have taken out a loan at a floating interest rate, any changes in the Repo Rate will have a direct impact on your EMI. However, if you have taken out a loan at a fixed interest rate, changes in the Repo Rate will not have a direct impact on it. In such cases, it depends on the bank whether or not they choose to alter the interest rate.

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