How Does Repo Rate Impact EMI?

Repo rate refers to the rate at which the Reserve bank of India (RBI) lends funds to commercial banks in the event of a crisis or inflation. This rate changes from time to time. As on December 7, 2022, RBI raised the repo rate by 35 basis points marking the 4th hike in a year and bringing the repo rate up to 6.25%. Earlier in September 2022, the rate was increased to 5.9% by 50 basis points. The Repo Rate is a very effective tool in the armour of the Reserve Bank of India and the central bank of the country uses this tool to control inflation as well as push economic growth in the country.

What Is the Current Repo Rate for 2023?

Recently, last December, the Monetary Policy Committee (MPC) announced an increase in the repo rate by 35 basis points. Any change in the Repo Rate also has a great impact on the interest rates on loans. In this article, we look at how does repo rate impact EMIs.Currently, the rate stands at 6.25%. Nevertheless, for a better understanding, the changing trend in the repo rate from the year 2019 onwards can be seen in the table below – 

DateRepo RateChange in Percentage
December 7, 20226.25%0.35%
September 30, 20225.90%0.5%
August 5, 20225.40%0.5%
June 8, 20224.90%0.5%
May 4, 20224.40%0.4%
December 4, 20224.00%0.00%
October 9, 20204.00%0.00%
August 6, 20204.00%0.00%
May 22, 20204.00%0.40%
March 27, 20204.40%0.75%
February 6, 20205.15%0.25%
August 7, 20195.40%0.35%
June 6, 20195.75%0.25%
April 4, 20196.00%0.25%

How Does the Repo Rate Work? 

RBI, the Central Bank of India, uses the repo rate to control and maintain sustainable liquidity in the financial system. During an economic crisis and shortage of money, commercial banks borrow funds from the RBI at a fixed repo rate. This rate can be adjusted depending on the situation. For instance, the RBI raises the rate when there is a need to restrict borrowings and control prices and alternatively, lowers the rate when it needs to boost economic growth. 

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What Is Reverse Repo Rate?

Reverse repo rate refers to the rate at which RBI borrows funds from commercial banks. Thus, through this financial instrument, the central Bank of India controls the supply of funds within the country. The reverse repo rate offered by RBI is typically lower than the repo rate. One must know the difference between both rates. While the repo rate is used to manage liquidity in the country’s economy, the reverse repo rate is used to monitor the flow of cash in the market. The Reserve Bank of India hikes the reverse repo rate to get commercial banks to deposit government bonds, securities and assets in the Central Bank of India and earn returns during inflation. When the Government raises the SLR rate, banks are required to keep a larger percentage of their deposits in the form of government securities, gold, and cash. 

How is the Repo Rate Different from Reverse Repo Rate? 

The below table summarizes the differences between repo rate and reverse repo rate – 

Repo RateReverse Repo Rate
The rate at which RBI lends funds to commercial banksThe rate at which RBI borrows funds from commercial banks
Used as a measure to control inflation and shortage of fundsUsed as a measure to boost the market growth and regulate cash flow
Always higher than the reverse repo rateAlways lower than the repo rate
Deals with the selling of govt. securities only to be repurchased laterDeals with the transferring of money

How Will Repo Rate Impact Home Loan EMIs in 2023?

A hike in the repo rate implies that commercial banks have to pay a higher rate of interest for the borrowed amount. This eventually affects any public borrowing, such as a home loan. With an increase in the repo rate, home loan interest rates also go up and particularly those with a floating rate of interest eventually see a hike in the home loan EMIs.

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As per the regulations of the RBI, all financial institutions are mandated to link their home loan prices to an external benchmark, known as the Marginal Cost of Funds based Lending Rate or MCLR. With this, financial dealings have become a lot more transparent, particularly for home loan borrowers as they are able to avail of the interest rate cuts much faster.

For a housing loan worth INR 50 Lakh taken at an interest rate of 7% for a period of 20 years, if the rate of interest is increased to 7.4%, then the home loan EMI determined using an online calculator will amount from INR 38,765 to INR 39,974. This hike in the rate of interest can be absorbed by stretching the loan tenor, thereby keeping the monthly EMIs unchanged. Financial institutions inform the borrowers of the revised EMI and repayment tenor in such cases. 


The revised repo rate set by the Reserve Bank of India will play a vital role in determining the home loan interest rates and payable EMI in the current year, 2023. Individuals who are looking to get a housing loan should be well aware of the consequences before signing on the dotted line. A home loan EMI calculator may be of great help when deciding on the EMI amount. In any case, a financial expert should be able to guide you through the process. 

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