Repo Rate vs. Bank Rate
Repo rate vs bank rate compares two RBI lending tools: the repo rate, now 5.50% after a 25 basis point increase on 7 October 2026, and the bank rate, now 5.75%. The repo rate covers short-term, collateral-backed borrowing, while the bank rate covers longer-term loans with no repurchase agreement.
Differences between Repo Rate and Bank Rate
Repo Rate and Bank Rate are the two most popular rates calculated for borrowing and lending activities carried on by commercial and central banks. They are the lending rates at which the Reserve Bank of India (RBI) lends funds to commercial banks and other financial institutions. While both rates are short-term tools used to control the cash flow in the market and are often mistaken to be one and the same, there is some noteworthy difference between the two.
Before we make a comparison between the repo rate and the bank rate, it is important to first understand what both these terms mean. Simply put, repo rate is the rate at which the RBI lends to commercial banks by purchasing securities while bank rate is the lending rate at which commercial banks can borrow from the RBI without providing any security. Both terms have been explained in a descriptive manner in the subsequent sections, along with their comparisons.
Key differences between Repo Rate vs Bank Rate
Though Repo Rate and Bank Rate have few similarities like both are fixed by the central bank and used to monitor and control the cash flow in the market, they have some prominent differences too.
Take a look at the differences between Repo Rate and Bank Rate below.
- Bank Rate is charged against loans offered by the central bank to commercial banks, whereas, Repo Rate is charged for repurchasing the securities sold by the commercial banks to the central bank.
- No collateral is involved while charging Bank Rate but securities, bonds, agreements and collateral is involved when Repo Rate is charged.
- Repo Rate is always lower than the Bank Rate.
- Increase in Bank Rate directly affects the lending rates offered to the customer, restricting people to avail loans and damaging the overall economic growth, whereas Increase in Repo Rate is usually handled by the banks and doesn't affect customers directly.
- Comparatively, Bank Rate caters to long term financial requirements of commercial banks whereas Repo Rate focuses on short term financial needs.
Though Bank Rate and Repo Rate have their own differences, both are used by RBI to control liquidity and inflation in the market. In a nutshell, the central bank uses these two powerful tools to introduce and monitor the liquidity rate, inflation rate and money supply in the market.
What is Repo Rate?
When we experience a financial shortfall, we approach the bank for loans. Likewise, when banks fall short of funds, they approach the central bank for financial assistance. Repo Rate is the rate at which the country's central bank, which is RBI in India, lends money to commercial banks during financial crisis. In other words, commercial banks borrow money from the Reserve Bank of India by selling securities or bonds with an agreement to repurchase the securities on a certain date at a predetermined price.
The rate of interest charged by the central bank on the cash borrowed by commercial banks is called the "Repo Rate". For example: If the Repo Rate is 10% and the loan amount borrowed by a commercial bank from RBI is Rs.10,000, then the interest paid to the RBI will be Rs.1,000.
On the contrary, when a commercial bank has excess funds, they can deposit the same in the central bank and earn "Reverse Repo Rate" interest. For example: If the Repo Rate is 10% and the funds deposited by the commercial bank to the RBI account is Rs.10,000, then, the interest paid to the commercial bank by RBI is Rs.1,000.
Repo Rate also decides the liquidity rate in the banking system. If RBI wants to increase the liquidity rate, they will reduce the Repo Rate and encourage the banks to sell their securities and if the central bank wants to control liquidity, they will increase the interest rate, discouraging banks to borrow easily. An increased Repo Rate means that the central bank will earn a higher interest rate from the commercial banks, while an increased Reverse Repo Rate means that the commercial banks earn high interest from the central bank.
What is Bank Rate?
The rate of interest charged by the central bank on the loans they have extended to commercial banks and other financial institutions is called "Bank Rate". In this case, there is no repurchasing agreement signed, no securities sold or collateral involved. Banks borrow funds from the central bank and lends the money to their customers at a higher interest rate, thus, making profits.
Bank Rate is usually higher than Repo Rate as it is an important tool to control liquidity. Also known as "Discount Rate", Bank Rate is often confused with Overnight Rate. While the bank rate refers to the interest rate charged by the central bank on loans granted to commercial banks, overnight rate is the interest charged when banks borrow funds among themselves. When Bank Rate is increased by RBI, bank's borrowing costs increase which in return, reduces the supply of money in the market.
What is the current Repo Rate and Bank Rate?
As of 7 October 2026, the repo rate stands at 5.25% after a reduction5.50% after an increase of 25 basis points as per the Reserve Bank of India (RBI). The bank rate and Marginal Standing Facility Rate (MSFR) stand at 5.75%, while the reverse repo rate stands at 3.35%. The previous revision in rates took place on 5 December 2025, when the repo rate and bank rate stood at 5.25% and 5.50%, respectively.
The Standing Deposit Facility (SDF) rate stands adjusted at 5.25%, which is 25 basis points below the repo rate.
The Monetary Policy Committee (MPC) also changed its stance to calibrated tightening, which signals that rate cuts are off the table in the near term and that the next policy action can only be a rate hike or a pause.
The next meeting of the MPC is scheduled for 2 to 4 December 2026.
Any reduction in the repo rate and bank rate will allow borrowers to avail loans at lower interest rates but an increase in repo rates will have a corresponding increase in the interest rates of loans.
Summary
Repo rate vs bank rate comes down to how the RBI lends to banks: the repo rate applies to short-term borrowing against securities, while the bank rate applies to longer-term lending without a repurchase agreement. Both rates guide liquidity, inflation and the cost of loans for borrowers. Check the current repo rate and bank rate in the section above to understand how your loan and deposit rates may move.
FAQs on Repo Rate vs. Bank Rate
1.What is the difference between repo rate vs bank rate?
The difference between repo rate vs bank rate lies in how the RBI lends to commercial banks. Under the repo rate, banks borrow by selling securities with an agreement to repurchase them, while the bank rate applies to loans given without a repurchase agreement or collateral. Both are policy tools the RBI uses to manage liquidity and inflation.
2.Why are the repo rate and bank rate often confused?
The repo rate and bank rate are often confused because both are rates at which the RBI lends money to commercial banks and both are used to manage liquidity. In the repo rate vs bank rate comparison, the key distinction is that repo borrowing involves securities and a repurchase agreement, whereas bank rate lending does not.
3.What is the repo rate, and how does it differ from the bank rate?
The repo rate is the interest rate at which the RBI lends money to commercial banks against securities that the banks agree to repurchase on a certain date at a predetermined price. Unlike the bank rate, it involves collateral and is mainly used to manage short-term liquidity in the banking system.
4.What is the bank rate, and how does it differ from the repo rate?
The bank rate, also known as the discount rate, is the interest rate at which the RBI lends to commercial banks and other financial institutions without any repurchase agreement or collateral. In the repo rate vs bank rate comparison, the bank rate is usually higher than the repo rate.
5.What is the reverse repo rate in the repo rate vs bank rate discussion?
The reverse repo rate is the interest the RBI pays commercial banks when they park their excess funds with it, which is the opposite of repo borrowing. It works alongside the repo rate and bank rate to help the RBI control liquidity in the banking system.
6.Is the bank rate the same as the overnight rate?
No, the bank rate is not the same as the overnight rate. In the repo rate vs bank rate context, the bank rate is charged by the RBI on loans to commercial banks, while the overnight rate is the interest charged when banks borrow funds among themselves.
7.Who fixes the repo rate and bank rate?
Both the repo rate and the bank rate are fixed by the central bank, which is the Reserve Bank of India in India. The RBI reviews and revises them periodically as part of its monetary policy.
8.How do the repo rate and bank rate affect liquidity and inflation?
The RBI uses the repo rate and bank rate to control the cash flow in the market. A lower repo rate encourages banks to borrow more and increases liquidity, while a higher repo rate or bank rate raises banks' borrowing costs and reduces the supply of money, which helps curb inflation.
9.Do changes in the repo rate and bank rate affect loan interest rates?
A reduction in the repo rate and bank rate allows borrowers to avail loans at lower interest rates, while an increase generally leads to higher loan interest rates. The extent and timing of the change differ from one lender and loan type to another.
10.Is a higher repo rate considered good in the repo rate vs bank rate framework?
A higher repo rate is neither good nor bad on its own. The RBI raises the repo rate to discourage banks from borrowing in an inflationary environment, which reduces the money in the economy, but it can also make loans costlier for borrowers.
News about Repo Rate vs Bank Rate
RBI has increased repo rate by 25 bps
The repo rate was raised by 25 basis points according to the Monetary Policy statement issued by the governor of the Reserve Bank of India (RBI) on 8 February 2023.
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