Repo rate is the rate at which the Reserve Bank of India lends credit to all commercial banks against their treasury bills. The Monetary Policy Committee decides the rate every two months. The repo rate today stands at 6.50% after an increase of 25 basis points from 6.25% on June 8, 2023. The RBI repo rate and the rate of interest charged on various loans offered by banks and financial institutions are directly proportional. Thus, with an increase in the repo rate, the interest rate also goes up and vice versa. Through this article, one can learn about the repo rate today and what are its effects on bank loans. 

Repo Rate Today vs Earlier 

The table below shows the repo rate today vs the changing trends from 2019 onwards – 

Impact of Repo Rate Today on Loans 

The effects of the current repo rate on the rate of interest taken against loans are explained below. 

1. Loan Interest Increases with Hike in Repo Rate Today

An increase in the repo rate means more outgo for the banks as they will need to pay a higher rate of interest on the loans borrowed from RBI. This leads to an increase in the interest rate of the retail loans, the burden of which automatically falls on the borrowers. As a result, they are compelled to pay more interest in the form of expensive EMIs every month. 

2. Loan Interest Decreases with Drop in Repo Rate Today

When RBI reduces the repo rate, the banks also lower the rate of interest and pass on the benefits to the borrowers anticipating they are in a better position to repay the dues. Alongside, banks increase the rates on deposits, resulting in a boost in the income of fixed deposit holders. Nevertheless, it is to be noted that the hike in the deposit rates and the curb on interest rates are both determined by the banks after taking into account the cash inflow or liquidity and the demand for deposits by the customers. 

Important Things to Consider 

The borrower must act fast and take a loan at the earliest to avail of lower interest rates. For existing borrowers, an increase in the repo rate will eventually result in an increase in the monthly EMIs. If the borrower has a substantial amount to repay the loan, they must do so immediately. 

The loan taken must be linked to an external benchmark. As soon as the external benchmark rate decreases, the benefit would immediately be passed on to the borrowers, indicating a drop in the rates of the retail loans. 

Also Read: Repo Rate Effect On Home Loan