What is Repo Rate? | Current Repo Rate 2025

We often hear the term ‘Repo Rate’ as it an important component of the monetary policy of the nation. Repo Rate is in a lot of talks right now. Let’s first try to understand what exactly is Repo Rate and how does it impact the Indian economy.

WHAT IS THE REPO RATE?

In simple terms, the repo rate refers to a rate at which a nation’s central bank (Reserve Bank of India in India) lends money to commercial banks in case of any shortfall of funds. Repo Rate is subject to changes as per the policies of RBI. It is an important tool used by the central bank to control inflation trends and maintain liquidity in the market. 

The repo rate and inflation have an inverse relationship. If the repo rate increases, inflation reduces and if the rate lowers, inflation increases. 

CHANGES IN REPO RATE SINCE 2019

Here’s a snapshot of all the repo rate changes that have been done by RBI since 2019.The last change to the Repo Rate was done in June 2025, and it is currently active as of July 2025:

In 2022, the first hike was done on May 4 by 40 bps in an unscheduled policy review with the objective of controlling inflation. The RBI Governor  while announcing the decision, said that the global economic recovery was losing momentum and geopolitical tension had been pushing inflation up.

On 08 June 2022, RBI announced another increase in the repo rate by 50 basis points to 4.90 per cent. The bank also decided to raise MSF Rate and Bank Rate to 5.15 per cent from 4.65 per cent.

On 05 August 2022, the Central Bank again increased the policy repo rate by 50 basis points to 5.4 per cent. The fourth hike was done on 30 September 2022.

On 07 December 2022, the fifth hike by the bank led to an increase in repo rate by 35 basis points (bps). It was followed by a sixth and final hike on 08 February 2023.

In 2025, RBI reversed its stance and reduced the repo rate three times — in February, April, and June — to support growth amid easing inflation. The current repo rate stands at 5.50%. RBI Governor Sanjay Malhotra has emphasized balancing inflation control with the need to revive economic momentum.

THE EFFECT OF THE REPO RATE ON THE INDIAN ECONOMY

Repo Rate is an effective tool used by the central bank to control and monitor the inflation, liquidity, and money supply in the market. Any change in repo rate directly affects the cost of borrowing by banks. If the economy witnesses a rise in inflation, RBI increases the repo rate to control it. An increase in the repo rate leads to an increase in the cost of borrowing for businesses, which results in lowering the investment and cash flow in the market.

In case of a liquidity crunch in the economy, the Central Bank reduces the repo rate, which leads to a reduction in the cost of borrowings and therefore increases the cash flow in the economy.

Between May 2022 and February 2023, RBI hiked the repo rate by a total of 250 basis points to curb inflationary pressures caused by global uncertainties, commodity prices, and currency fluctuations. Since February 2025, it has cut the repo rate by 100 basis points, reflecting a shift toward growth recovery.

Frequently Asked Questions:

• What is the Current Repo Rate? 

The current repo rate stands at 5.50%, reduced on June 6, 2025.

• How many times has RBI changed Repo Rate in 2025?

RBI has changed the repo rate three times in 2025—in February, April, and June—each time reducing it.

• What happens when Repo Rate increases?

An increase in Repo Rate increases the cost of borrowings, which results in lowering the investment and cash flow in the market. It also helps control inflation.

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