If you have ever taken a business loan or checked EMI rates, you have already been affected by the repo rate. It is the single most important interest rate in India because it decides how expensive or cheap it is for banks to borrow money from the Reserve Bank of India (RBI). That cost eventually flows down to your loan EMIs, your credit terms, and even the interest you earn on fixed deposits.
For small business owners, the repo rate directly impacts your cost of borrowing, your working capital loans, and your ability to invest in growth. This guide explains what the repo rate means, what the current repo rate is, what the reverse repo rate does, and how changes in these rates affect your business.
The repo rate is the interest rate at which commercial banks borrow short-term funds from the RBI by pledging government securities as collateral. The word “repo” stands for Repurchase Agreement. Banks sell government securities to the RBI with an agreement to buy them back later, and the interest charged on this transaction is the repo rate.
When the RBI wants to control inflation, it raises the repo rate, making borrowing more expensive. When it wants to boost growth, it lowers the repo rate, making credit cheaper and encouraging businesses to borrow and spend.
The reverse repo rate is the opposite. It is the rate at which the RBI borrows money from commercial banks. When banks have surplus cash that they do not want to lend out, they can park it with the RBI and earn interest at the reverse repo rate.
The current reverse repo rate is 3.35%. While the reverse repo rate is still relevant, the RBI now primarily uses the Standing Deposit Facility (SDF) at 5.00% to absorb excess liquidity from the banking system.
Here are the current RBI policy rates:
| RBI Policy Rate | Current Rate |
|---|---|
| Repo Rate | 5.25% |
| Reverse Repo Rate | 3.35% |
| Standing Deposit Facility (SDF) | 5.00% |
| Marginal Standing Facility (MSF) | 5.50% |
| Bank Rate | 5.50% |
The current repo rate of 5.25% has been held steady since December 2025, after a series of cuts brought it down from 6.50% in 2024.
| Step | What Happens |
|---|---|
| 1 | RBI sets the repo rate during its Monetary Policy Committee (MPC) meeting |
| 2 | Commercial banks borrow short-term funds from RBI by pledging government securities |
| 3 | When the repo rate changes, banks’ borrowing cost goes up or down |
| 4 | Banks adjust their lending rates on loans and deposits accordingly |
| 5 | Consumers and businesses feel the impact through changes in EMIs, loan rates, and deposit returns |
| Year | Repo Rate (%) |
|---|---|
| 2020 | 4.00 |
| 2021 | 4.00 |
| 2022 | 6.25 |
| 2023 | 6.50 |
| 2024 | 6.50 |
| Apr 2025 | 6.00 |
| Aug 2025 | 5.50 |
| Dec 2025 | 5.25 |
| May 2026 | 5.25 |
The repo rate dropped sharply during 2020 to support the economy, rose in 2022 to fight inflation, and has been gradually easing since early 2025.
For a small business owner, the repo rate is not just a number on the news. Here is how it directly affects you:
| Basis | Repo Rate | Reverse Repo Rate |
|---|---|---|
| Meaning | Rate at which RBI lends to banks | Rate at which RBI borrows from banks |
| Current rate | 5.25% | 3.35% |
| Purpose | Controls inflation and borrowing costs | Absorbs excess liquidity from the system |
| Who benefits | Banks get funds; borrowers get cheaper loans | Banks earn interest on surplus funds |
| Impact on loans | Directly affects loan EMIs | No direct impact on loan rates |
The repo rate is reviewed during each MPC (Monetary Policy Committee) meeting. Here are the remaining 2026 dates:
| Meeting | Dates |
|---|---|
| June 2026 | June 4 to 6 |
| August 2026 | August 6 to 8 |
| October 2026 | October 6 to 8 |
| December 2026 | December 8 to 10 |
Any change in the current repo rate is announced after these meetings, so business owners should mark these dates when planning major borrowing or investment decisions.
The repo rate touches every business that borrows money or earns interest. When the current repo rate is low, like the 5.25% we see today, it is a good window to lock in affordable loans and invest in growth. When it rises, tightening cash flow and reducing unnecessary debt becomes more important. Keeping an eye on RBI’s MPC decisions helps you time your business loans and make smarter financial moves. And when your accounting is already organised with a good accounting software, you can focus on these bigger decisions with confidence.
Written by
Vyapar Editorial Team represents the officially authorized content and review function at Vyapar App, a business management, billing and accounting software used by millions of SMEs. Articles published under this author are created and reviewed by subject-matter experts to ensure accuracy, compliance, and practical business value.
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