In 2025, policy decisions by the Reserve Bank of India are again at the centre of discussions on EMIs, deposit rates, and market returns. Many people now track interest rate moves more carefully because even a small change can alter their monthly budget or expected returns from savings.
As of the latest Monetary Policy Committee meeting in December 2025, the current rate of repo rate stands at 5.25% per annum. This level is the outcome of a series of measured cuts during the year, as the RBI has tried to balance growth support with the need to keep inflation within its target band.
To understand what this means for individual loans and investments, it is useful to look at how repo and reverse repo work, and how the central bank has moved these rates over the past few quarters.
Quick snapshot of policy rates in 2025
The table below gives a simple view of how the main policy rate has changed during 2025:
| Date | Repo rate |
| 5th December 2025 | 5.25% |
| 6th August 2025 | 5.50% |
| 6th June 2025 | 5.50% |
| 9th April 2025 | 6.00% |
| 7th February 2025 | 6.25% |
| 6th December 2024 | 6.50% |
Alongside this, the reverse repo rate has been kept at 3.35% through this period, which shows the RBI’s preference for adjusting the main lending rate while using other liquidity tools in the background.
A brief note on basis points
Policy announcements usually mention rate changes in “basis points” or “bps”. This is a standard way of expressing small shifts in interest rates. Many applicants use an EMI calculator alongside rate updates to understand how changing interest levels may influence the loan amount they can qualify for.
- 1 basis point = 0.01 %
- 100 basis points = 1.00 %
- A cut of 25 bps = 0.25 % reduction in the rate
So, when the repo rate moves from 5.50 % to 5.25 %, that is a 25 bps cut. The number may look small, but across the whole banking system, it has a visible impact on EMIs, deposit rates and bond yields over time.
How the repo rate works for banks
At the core, the repo rate is the price at which banks can borrow short-term funds from the RBI by placing government securities or other eligible instruments as collateral.
In daily operations, a bank may need funds because of:
- Higher withdrawal demands
- Strong loan disbursements
- Regulatory liquidity requirements
Instead of abruptly cutting back lending or selling assets in the market, the bank can approach the RBI. The transaction is structured as:
- The bank sells approved securities to the RBI.
- It agrees to buy them back on a specified date.
- The difference in price reflects the interest cost, which is tied to the repo rate.
When the repo rate is reduced:
- The cost of such short-term borrowing falls.
- Over time, banks are in a better position to reduce lending rates.
- New loans may be priced more competitively, subject to the bank’s own funding costs and risk pricing.
When the rate is increased, the opposite tends to happen, and the flow of fresh credit can slow.
What the reverse repo rate does
The reverse repo rate serves the opposite purpose. It is the rate at which banks can place extra funds with the RBI for small periods. This facility can be really helpful when banks:
- Have more deposits than immediate lending opportunities.
- Prefer a low-risk option for very short-term deployment.
- Need a safe place for temporary cash management.
Key points about this rate:
- Funds parked at the RBI earn interest at the reverse repo rate.
- It allows the RBI to absorb excess liquidity from the banking system.
- When it is relatively attractive compared with alternatives, banks may choose to keep more money with the RBI instead of lending aggressively.
In short, the repo rate injects liquidity, while the reverse repo rate helps absorb it.
Repo rate Vs reverse repo rate: Main differences
The interaction of these two rates is often summarised as repo rate vs reverse repo rate, but they are not competing measures; they are complementary tools. A simple comparison is helpful:
| Aspect | Repo rate | Reverse repo rate |
| Direction of funds | RBI lends to banks | RBI borrows from banks |
| Purpose | Provide short-term liquidity | Absorb surplus liquidity |
| Collateral | Banks give securities to the RBI | Generally, no collateral from the RBI to banks |
| Usual level | Higher | Lower |
| Key effect | Influences lending rates and credit | Influences how banks deploy surplus funds |
By changing these two rates and the corridor between them, the RBI influences both the cost and the availability of money in the financial system.
How recent rate cuts affect borrowers
For borrowers, the question is very direct: will EMIs go down, and if so, when? Many home loans and other floating-rate products are linked to external benchmarks, often the repo rate. Because of this link, changes in policy rates are now transmitted more systematically to borrowers.
Typical developments seen after the recent cuts:
- Marginal cost-based lending rates and repo-linked lending rates have been adjusted downward by several banks.
- New home loan offers for borrowers with good credit scores are more competitive than they were when the repo rate was at 50%.
- Reset dates on existing floating-rate home loans are leading to gradual EMI reductions, although the timing varies by bank and agreement.
The repo rate impact on personal loan products is present but more restrained. Personal loans are unsecured and carry higher credit risk, so banks do not usually cut these rates as sharply as home loan rates. Still:
- Good-rated salaried customers could get slightly better offers.
- When the funding environment is not too complex, some banks might bring forward promotional rates or offer a processing fee waiver.
- If you have existing floating-rate personal loans, they can benefit from a small reduction in interest costs over time.
Borrowers should scour bank communications, loan statements and reset clauses to understand the impact in their case.
Wrapping up
In 2025, understanding repo and reverse repo rates enables individuals to link decisions made by the RBI with their day-to-day money choices. By following these policy signals, investors can adjust portfolios to protect returns.
FAQs
What is the repo rate in simple terms?
It is the interest rate at which the RBI lends short-term funds to banks. This influences overall lending and deposit rates in the economy.
How does the reverse repo rate affect my savings and investments?
A higher figure encourages banks to keep more money with the RBI. This can limit lending growth and may slow increases in deposits.
How do changes in rate affect home and personal loan EMIs?
When it falls, banks’ borrowing costs usually decline. They may reduce lending rates, which can lower EMIs on floating-rate home and personal loans.
