Repo Rate vs Reverse Repo Rate 2025: Key Difference
Did you hear India's current repo rate was reduced to 6.25% by 25 basis points after the close-door meeting amongst the six Monetary Policy Committee (MPC) members on 7th February 2025? However, along with the repo rate, Mutual Funds experts have thrown around another term that is “Reverse Repo Rate” far too many times.
This has created the whole new buzz and started a comparison amongst Repo Rate Vs Reverse Repo Rate 2025. But every investor has the same question, “how does the change in the repo rate and reverse repo rate affect their investment?”
This analysis explores the major key difference between the repo rate and reverse repo rate in India. Let's get started by learning the repo rate meaning.
What is Repo Rate?
The repo rate full form stands for "Repurchase Option" or "Repurchase Agreement", it is the interest levied by the RBI (Reserve Bank of India) to lend money to commercial work. It is the most important tool used by the RBI to control inflation rates in India.
Current Repo Rate in India 2025 Explained
The current repo rate India is 6.50% as of 7 February 2025, which was decided after the RBI's six-member Monetary Policy Committee (MPC) meeting on 7 February 2025. The repo rate was cut down to 6.25% on the basis points (BPS, a unit used to measure the rate of change in an index or other benchmark. Herein, one basis point is equal to 0.0001 or 0.01% (1/100th of a percent).
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RBI Repo Rate History
Here is a table below that lists updated and historical repo rates in India set up by the RBI:
| Date of Update | Rate (%) |
|---|---|
| 07-Feb-25 | 6.25% |
| 06-Dec-24 | 6.50% |
| 09-Oct-24 | 6.50% |
| 08-Aug-24 | 6.50% |
| 07-Jun-24 | 6.50% |
| 05-Apr-24 | 6.50% |
| 08-Feb-24 | 6.50% |
| 10-Aug-23 | 6.50% |
| 08-Jun-23 | 6.50% |
| 06-Apr-23 | 6.50% |
| 08-Feb-23 | 6.50% |
| 07-Dec-22 | 6.25% |
| 30-Sep-22 | 5.90% |
| 08-Jun-22 | 4.90% |
| 04-May-22 | 4.40% |
| 22-May-20 | 4.00% |
| 27-Mar-20 | 4.40% |
| 04-Oct-19 | 5.15% |
| 07-Aug-19 | 5.40% |
| 06-Jun-19 | 5.75% |
| 01-Aug-18 | 6.50% |
| 06-Jun-18 | 6.25% |
| 02-Aug-17 | 6.00% |
What does Reverse Repo Rate Mean?
The Reverse Repo Rate is the interest rate at which the Reserve Bank of India (RBI) borrows money from commercial banks. It is basically the opposite of the repo rate, where the RBI lends money to banks.
The RBI make use of the reverse repo rate to control inflation and manage how much money is in the economy. When inflation is high, the RBI increases the reverse repo rate. This makes banks want to park their money with the RBI, rather than lending it out to customers. As a result, there is less money for loans, which helps control inflation.
For borrowers, if the reverse repo rate goes down, banks might lower their lending rates, making loans cheaper. However, if you have a fixed-rate loan, the reverse repo rate does not directly affect you. Those with floating-rate loans may see changes in their loan payments.
The Monetary Policy Committee (MPC), which is led by the RBI Governor, decides the reverse repo rate.
Repo Rate vs Reverse Repo Rate 2025
The table draws a comparison between the repo rate and reverse repo rate in India:
| Particulars | Repo Rate (2025) | Reverse Repo Rate (2025) |
|---|---|---|
| Lender | Reserve Bank of India (RBI) | Commercial Banks |
| Borrower | Commercial Banks | Reserve Bank of India (RBI) |
| Objective | Manage short deficiency of funds | Minimize the overall supply of money to the Indian economy |
| Rate of Interest | Higher rate of interest than Reverse Repo Rate | Lower than Repo Rate |
| Interest Charge | Through a repurchase agreement | Through a reverse repurchase agreement |
| Mechanism | Commercial banks get funds from RBI using government bonds as collateral | Commercial banks deposit excess funds with RBI and earn interest |
| Impact of Higher Rate | Increases cost of funds, making loans more expensive | Reduces money supply as banks park more funds with RBI |
| Impact of Lower Rate | Lowers cost of funds, making loans cheaper | Increases money supply as banks lend more and reduce deposits with RBI |
Why has Repo Rate Increased?
The Repo Rate is increased by the Reserve Bank of India (RBI) mainly to control rising prices, also known as inflation. When prices are going up too fast, the RBI raises the repo rate to make it more expensive for banks to borrow money. This makes it harder for banks to lend money to people, which helps slow down spending and control inflation.
Here is what happens when the repo rate increases:
- Controlling inflation: The main reason the RBI raises the repo rate is to control inflation. By making borrowing more expensive for banks, it reduces the amount of money available in the economy, which helps slow down price increases.
- Impact on banks: When the repo rate goes up, banks have to pay more to borrow money from the RBI. Because of this, banks usually charge high interest rates on loans, making it more expensive for people to borrow money.
- Stabilizing the economy: By raising the repo rate, the RBI tries to keep the economy balanced. It helps in controlling inflation without harming the economy's growth.
- Economic reasons: The RBI raises the repo rate based on things like how fast prices are rising, how well the economy is growing and other market factors.
In simple terms, raising the repo rate is one way to slow down inflation and keep the economy stable.
Why is Repo Rate Increased Good or Bad?
Let's weigh the impacts of repo rate increased good or bad under various circumstances:
| Particulars | Good | Bad |
|---|---|---|
| Inflation Control | Helps reduce rising prices (inflation). | Can slow down the economy too much if raised too high. |
| Business Impact | Encourages businesses to spend cautiously, avoiding risky growth. | Makes borrowing more expensive, which can stop businesses from expanding. |
| Stock Market | Prevents the economy from overheating. | Can cause stock prices to drop as businesses face higher costs. |
| Loan Rates | Helps prevent too many people from taking loans when the economy is growing too fast. | Higher interest on loans like home loans or car loans. |
| Economic Stability | Aims to keep the economy balanced and healthy. | It can result in slower economic growth in the short term. |
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Mutual Funds Sectors Affected by Repo Rate Cut 2025
The 2025 Repo Rate Cut by the RBI is likely to affect a few sectors, especially the banking sector and Consumer Sector Goods. Here is how:
- Banks: With a lower repo rate, banks can borrow money more cheaply. This can result in lower interest rates on loans for customers, like home loans and personal loans. As a result, more people may borrow money, which can help banks like HDFC, Axis Bank and SBI earn more. However, how much this helps will depend on whether banks pass the full rate cut to customers.
- Consumer & FMCG (Fast-moving Consumer Goods): When loans become cheaper, investors may have more money to spend. This could increase spending on everyday items like food, hygiene products and other essentials. Companies like ITC, Dabur and HUL (Hindustan Unilever Limited)could see higher sales as consumers buy more of these products.
In simple terms, the repo rate cut could help banks by increasing demand for loans and consumer goods companies by encouraging people to spend more.
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To Conclude Repo Rate vs Reverse Repo Rate 2025
In short, due to the recent changes in the repo rate India by RBI in 2025, ample investment opportunities have opened in the banking and consumer mutual funds sector.
If you are someone looking from the outside and just waiting, your moment is here. Start an early SIP (Systematic Investment Plan) and make yourself higher returns with the fast-growing sectors of the Indian economy.
Most Asked Questions on Repo Rate 2025
-
What is the current repo rate in India 2025?
As of 2025, the repo rate in India is 6.50%. (This can change based on RBI's policy updates, so it’s good to check the latest data.)
-
Is RBI's repo rate always greater than reverse repo rate?
Yes, the repo rate is always higher than the reverse repo rate. The repo rate is for when banks borrow money from the RBI, while the reverse repo rate is for when banks deposit their excess funds with RBI.
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How does RBI repo rate affect home loan?
When RBI changes the repo rate, it affects banks' lending rates. If the repo rate goes up, home loan rates may rise too, making loans more expensive. If the repo rate goes down, home loans might become cheaper.
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Is the duration for a repo rate 1 day or up to 90 days?
The repo rate is typically for 1 day, which is called an overnight loan. However, there are also longer-term repo agreements, but the most common is for 1 day.
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What is a repo auction?
A repo auction is when the RBI offers banks the chance to borrow money at the repo rate. Banks bid to borrow funds and the RBI decides who gets the money.
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What is the relationship between inflation and repo rate India?
When inflation is high, the RBI increases the repo rate to make borrowing more expensive and reduce spending. This helps control inflation. When inflation is low, the repo rate may be reduced to encourage borrowing and spending.
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Who controls RBI in India and how does RBI earn money?
The Government of India controls the RBI, but it functions independently in terms of monetary policy. The RBI earns money through interest on loans to banks, investments and managing India's foreign exchange reserves.
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What is BPS or Basis Point?
A Basis Point (BPS) is a unit used to measure changes in interest rates. 1 BPS = 0.01%. Therefore, if a rate increases from 5% to 5.25%, it’s a rise of 25 BPS.
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