Repo Rate Meaning | Current Repo Rate 2023

Repo Rate Meaning:

The repo rate is the rate at which the central bank of a country lends money to banks in the event of a shortfall of funds.
It helps in smoothing out fluctuations in liquidity and gives a regulated price for credit to banks.

It is a promise by the banks with the RBI that they will repurchase the securities from it later on which they have taken loans.

It is used as a benchmark for other rates such as the prime lending rate and the base rate

During times of inflation, the central bank multiplies the repo price to keep banks from getting cash from the central institution. 

It is one of the most important factors that control the money supply in the economy. 

When a bank has no longer enough finances to satisfy its everyday necessities or supply loans it asks the Central Institution to offer a little cash.  

Then according to the monetary policy, RBI gives money to the bank as a loan at a certain rate of interest which is known as the repo rate of RBI.

The flow of cash is a must for running the banking system. The loan given by the RBI to the bank can be for the short term or the long term. 

The interest rate charged for a short term is known as a Repo rate while the rate charged for a long term is known as a bank rate 

REPO Rate full form:

REPO stands for "Repurchasing Option". 

It is also known as a Repurchase Agreement. 

RBI Monetary Policy Repo Rate:

It is one of the main components of the monetary policy of the RBI. It is always set by the  RBI (Reserve Bank of India). So it may also be known as the repo rate of the RBI. The Reserve Bank is India's Central bank.

Factors that influence the RBI in setting the Repo Rate:

  • Inflation rates
  • Consumer Price Index (CPI)
  • Growth in the economy
  • Demand for loans 
  • Liquidity in the market

Main key points:

  • The RBI reviews the RR from time to time and makes the necessary changes. 
  • It is based on the demand and supply of money in the system.  
  • The Reserve Bank of India fixes a repo rate that banks use as a reference point while deciding on what interest should be offered to their customers.
  • It is the rate of interest at which the RBI lends money to commercial banks against government securities. 
  • The RBI regulates the amount of money that can be lent through the setting of the RR. 
  • It influences the cost of borrowing money and affects the rates of interest in the market.
  • RR has a direct impact on the profitability of banks.
  • It is one of the most important tools that the RBI uses to control inflation in India
  • An increase in the repo rate can lead to an increased rate of interest on loans.
  • When RR goes down, banks lend money at lower rates which in turn stimulates demand for goods and services leading to higher GDP whereas an increased Repo leads to a slowed-down economy due to a slowdown in credit activity. 

RBI repo rate History:

It is decided and changed from time to time as per the requirement. 

Below is a table chart that shows how many times it has been changed in 2022 and 2023. Its value is also mentioned in it.

Date Repo Rate
7 December 2022 6.25%
30 September 2022 5.90%
5 August 2022 5.40%
8 June 2022 4.90%
4 May 2022 4.40%
8 April 2022 4.00%

Current Repo Rate:

As per the information provided by the RBI authorities till now in March 2023, the repo rate today is 6.50% which has reached there after an increase of 25 bps.

It has a direct impact on the country's overall interest rate scenario. Interest on loans taken by consumers increases when the repo rate increases and vice versa.


What is bps in Repo rate?

BPS stands for Basis Points. It is used to measure interest rates. 1 bps is equal to 0.01%.

Why Repo Rate is called Repurchase Rate?

As it is the rate at which banks get loans by selling their securities to RBI when they don't have enough funds. And when they have enough funds they pay back to RBI and get back(repurchase) their previously sold securities.

Related Articles: Reverse Repo Rate | Current Reverse Repo Rate        

                             Repo Rate and Reverse Repo Rate

                                Statutory Liquidity Ratio (SLR Rate)

                             Bank Rate Meaning | Current Bank rate

                             CRR Meaning | Current CRR Rate