Repo Rate (Aug 2024) - Meaning, Current Rates, Difference and Impact (2024)

Home Loan

What is the Current Repo Rate?

Recently, the Reserve Bank of India revised its rates on 07 June 2024, following which some specific rates have changed.

Note: The information is updated as per the Press Release dated 07 June 2024.

RBI Repo Rate History: 2014 - 2024

The following table shows the recent Repo Rates maintained by the RBI:

The Impact of Repo Rate Rise on Individuals

• Effect on Savings - Individuals having savings and fixed deposits will enjoy higher rates and returns when the Repo Rate increases.
• Effect on Borrowing - ​A rise in the present Repo Rate will lead to decreased borrowing power as the lending rates increase.
• Effect on Mortgage Rates - A hike in Repo Rate means all existing Home Loans with floating rates of interest are likely to become expensive, as banks may decide to pass on the hike to customers. This will inevitably lead to an increase in the equated monthly instalments (EMIs) on Home Loans for buyers.

What is Repo Rate Linked Home Loans?

When borrowers link their Home Loan interest rates to the RBI Repo Rate, they link their interest rate to a benchmark external to the lender. Here are two components of a Repo Rate linked Home Loan: 

• The Repo Rate: Borrowers can link their Home Loan to the RBI Repo Rate, which is currently at 6.50%*. It lends a degree of transparency to borrowers, letting them monitor one of the factors that dictate any increase or decrease in their Housing Loan interest rate.
• The Spread: This is the additional margin lenders charge on top of the Repo Rate to determine the final Home Loan interest rate. While the Repo Rate is fixed at the national level, the spread is determined based on the individual’s profile, considering the risk factors attached to your Home Loan application.

Bajaj Housing Finance offers attractive Repo Rate linked Home Loans to eligible applicants. Apply today to benefit from our attractive lending terms. 

​Repo Rate vs. Bank Rate

​​​Commercial and central banks use the Repo Rate and Bank Rate to calculate lending and borrowing. These rates are used by the Reserve Bank of India (RBI) to lend funds to banks or other financial institutions and control the cash flow in the market. ​​

Let us understand the distinguishing factors between the Repo Rate and the Bank Rate. Repo Rate is the interest rate that the RBI charges banks when they want to borrow funds, pledging government securities. On the other hand, Bank Rate is the rate of interest at which the RBI lends funds to banks without pledging any securities. Read further to know the differences between the Repo Rate and the Bank Rate.

• Repo Rate: This rate is usually lower than the Bank Rate because the lenders and other financial institutions pledge government securities against the loan. The effect of the Repo Rate on loans is less critical than that of the Bank Rate, however, it might affect the borrowing activity. The RBI utilises the Repo Rate to meet the short-term financial needs of commercial banks.
• Bank Rate: Here, the banks do not pledge any securities against the funds they borrow from the RBI. The Bank Rate is therefore higher than the Repo Rate. When RBI increases the Bank Rates, the banks increase the rate of interest they charge on the loans, making the loans expensive for the borrowers. RBI uses Bank Rates to fulfil the long-term economic goals of the country.

Repo Rate vs. Reverse Repo Rate

While the Repo Rate is the rate at which the RBI lends funds to commercial banks against government securities, the Reverse Repo Rate is the rate at which the central bank borrows funds from commercial banks. The RBI pledges securities with the banks for a short term in order for the commercial banks to voluntarily deposit their funds at a favourable interest rate. Here are the key differences between Repo Rate and Reverse Repo Rate:

• ​​Repo Rate is used to control the cash flow and inflation in the market by managing the lending activity. Reverse Repo Rate, alternately, is utilized to control the economy’s liquidity and stabilise the financial systems.
• While the Repo Rate is the monetary policy that is used to control inflation by reducing the supply of cash, the Reverse Repo Rate is used to control inflation and maintain financial systems.
• ​ The rate of interest for the Repo Rate is higher than the Reverse Repo Rate. ​
• ​Repo Rate may affect loans or investment activities. It can also affect the stock market performance. Reverse Repo Rate may affect short-term lending or borrowing and market conditions. ​

*Terms and conditions apply.

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