The revised repo rate set by the Reserve Bank of India stands at 5.50%, as the repo rate has been reduced by 50 basis points, which is the third repo rate revision after 8 April 2025. While the reverse repo rate remains at 3.35%.
The repo rate has been reduced by 50 basis points to 5.50% by the Reserve Bank of India (RBI) as per the decision of the Monetary Policy Committee (MPC) on 6 June 2025. The Standing Deposit Facility (SDF) and the marginal standing facility (MSF) rate stand at 5.25% and 5.75%, respectively. There is no change in the reverse repo rate, and it remains the same at 3.35%.
On 7 February 2025, the Reserve Bank of India decreased the policy repo rate by 25 basis points, bringing it down from 6.50% to 6.25%. This marks the first change in the repo rate since 2023, as the Monetary Policy Committee (MPC) had kept it unchanged for two years. Along with the repo rate reduction, the Standing Deposit Facility (SDF) rate was lowered from 6.25% to 6.00%. The Bank Rate and the Marginal Standing Facility (MSF) rate also declined from 6.75% to 6.50%, while the Fixed Reverse Repo Rate remained steady at 3.35%.
Repo rate is the interest at which RBI lends money to commercial banks in the country. Every time this rate reduces, it means that other banks can now borrow money from RBI at a much lower interest rate.However, if the repo rate increases, then banks would have to pay a higher rate of interest to the RBI.
The commercial banks reduce or increase usually pass this benefit on to their customers by reducing the interest rates on the loans they offerbased on these repo rate changes. Therefore, every time there is a change in repo rate, there is usually an increase or decline , there usually is a decline in the interest rates on loans offered by various banks.
How does this impact you? If your interest rates are reduced, you will pay a lesser amount of interest which will bring down your EMI and the overall cost of your loan and vice versa.
Personal loans, car loans, home loans, etc. are expected to get cheaper or more expensive due to cut or hike in the repo rate. However, this will come into effect only if banks decide to pass on the hike or cut benefit to their customers.
Apart from impacting general borrowers, there is also is a huge impact on the industrial sector. Any reduction in the repo rate means that industries may be able to get loans at cheaper interest rates from lenders but an increase in repo rates means that the loans will be at a higher interest rate.
This is likely to result in commodities becoming cheaper or more expensive, ultimately impacting you, the end consumer, again. That said, it remains to been seen how soon banks will implement the repo rate hikes or cuts on the loans they offer to the industrial sector.
When a reduction or increase in policy rates occurs, financial circles are usually buzzing with questions on when the rate cut or hike will translate into a change in bank loan interest rates.
The International Monetary Fund (IMF) conducted a study on the interest rate transmission in the country, in which, the following were deduced:
Money is a bank’s raw material, absolutely vital to its day-to-day operations. In any industry, whenever an important supplier reduces the prices of the raw materials it supplies, it triggers price cuts downstream. This refers to deposit rates in the case of banks.?
Now, whether a bank passes on the benefit of the lower interest rate to its customers or not depends on the level of competition in the market.
If any particular bank holds the monopoly power in the industry, it is not under any pressure to pass on the lower-cost benefits to its consumers right away. This means that the transmission of benefits arising out of RNI rate cuts may end up taking a long time.
Since banks do not control this decision, they increase the interest margin and slow loan growth. Hence, the monetary transmission, in this case, is dependent on the government’s decision to shore up the balance sheets of banks.
While this is a great tool to control inflation, RBI often uses this monetary policy method after factoring the condition of the Indian economy and inflation levels to control the market inflation and manage the liquidity of the economy. However, this process might not prove to be effective if the banks are not ready to pass on the rate cut to the customers.
The bottom line is that apart from the lag in monetary transmission, banks are unlikely to match RBI’s rate cuts. However, additional rate cuts and liquidity support measures are needed to encourage banks to lower rates in the future.
Repo rate is the rate at which money is lent to banks by the Reserve Bank of India (RBI) while reverse repo rate is the rate at which money is borrowed from banks by the RBI.
Repo stands for Repurchase Agreement or Repurchase Option.
The Reserve Bank of India (RBI) has issued guidelines that any cut in repo rates and the corresponding benefits to banks should be passed onto consumers also in the form of cuts in interest rates of loans.
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