BharatNotes What is Repo Rate?
The repo rate (short for repurchase rate) is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks for short periods, typically overnight, against the collateral of government securities. The borrowing bank simultaneously agrees to repurchase the securities the next day at a slightly higher price — the difference reflecting the repo rate. It operates within the RBI's Liquidity Adjustment Facility (LAF) and is the central policy rate through which the RBI signals its monetary policy stance.
A cut in the repo rate lowers banks' cost of funds, which (when transmitted) reduces lending rates on home, auto and business loans, stimulating demand and growth. A hike raises borrowing costs and is used to rein in inflation.
The LAF Corridor
The repo rate anchors a symmetric policy corridor:
| Rate | Position | Level (as of June 2026) |
|---|---|---|
| MSF rate | Ceiling (repo + 25 bps) | 5.50% |
| Bank Rate | Aligned with MSF | 5.50% |
| Repo rate | Centre (policy rate) | 5.25% |
| SDF rate | Floor (repo − 25 bps) | 5.00% |
The Standing Deposit Facility (SDF) rate is the floor, at which banks park surplus funds with the RBI without collateral; it replaced the fixed reverse repo rate as the corridor floor in April 2022. The Marginal Standing Facility (MSF) is the penal ceiling at which banks borrow by dipping into their Statutory Liquidity Ratio holdings. (Source: RBI website, as of 9 June 2026.)
Who Sets It and How
The repo rate is decided by the six-member Monetary Policy Committee (MPC), set up under the amended RBI Act in 2016. The MPC has a statutory mandate to keep retail (CPI) inflation at 4%, within a tolerance band of 2–6%. It meets at least bi-monthly; the Governor chairs it and casts a deciding vote in case of a tie.
Current Status (2025–26 Easing Cycle)
After a prolonged pause, the RBI began cutting rates in 2025 to support growth as inflation moderated:
- February 2025 — cut 25 bps (the first cut in nearly five years)
- April 2025 — cut 25 bps, to 6.00%
- June 2025 (55th MPC meeting, 4–6 June) — cut 50 bps to 5.50%; CRR also reduced by 100 bps to 3.00%
- December 2025 (58th MPC meeting, 3–5 December) — cut 25 bps to 5.25%, with a neutral stance
As of the RBI's published rates on 9 June 2026, the repo rate stands at 5.25%, CRR at 3.00% and SLR at 18.00%.
UPSC Angle
This is a foundational concept underpinning Prelims and GS3 Mains questions on monetary policy, inflation targeting and quantitative tools (CRR, SLR, OMOs). Key exam traps: the repo rate is set by the MPC, not the Governor alone; the SDF (not the old reverse repo) is now the corridor floor; and repo (RBI lends to banks) must be distinguished from reverse repo/SDF (banks lend to RBI). Linkages worth noting are policy-rate transmission to lending rates and the growth-versus-inflation trade-off.
