This is Part 4 of Money Basics for Indians, our 12-part series on the everyday money systems every Indian should understand. New here? Start with Part 1: Bank Accounts and Deposit Insurance, or read the previous part, Part 3: Your Credit Score.
Every couple of months, the news leads with the RBI's "repo rate" decision. It can sound remote, but it affects your loan EMIs, your FD returns and even the price of things you buy.
What the repo rate is
The repo rate is the interest rate at which the Reserve Bank of India lends short-term money to banks. When it rises, borrowing becomes more expensive for banks, and they pass that on. When it falls, loans tend to get cheaper.
The RBI's Monetary Policy Committee (MPC) sets the rate, mainly to keep inflation close to its 4 percent target. Read why prices matter in inflation and real returns.
The latest decision
On 7 October 2026, the MPC raised the repo rate by 0.25 percentage points to 5.50 percent and changed its stance to "calibrated tightening", citing rising food and fuel prices. It projected inflation of 5.2 percent for 2026-27. Read the market reaction in our October market analysis.
What it means for borrowers
- Most new floating-rate home loans are linked to an External Benchmark Lending Rate (EBLR), usually the repo rate. When the repo rises, your rate rises at the next reset, often within three months.
- Banks usually extend your loan tenure rather than raise your EMI. That keeps the EMI the same but can add many months and lakhs of rupees in interest. Ask your bank which it is doing.
- Older loans linked to MCLR or base rates change more slowly.
- Fixed-rate loans do not change.
What it means for savers
- Banks may raise FD rates in the months after a hike, though not always by the full amount.
- If rates are expected to rise further, some savers use shorter FDs or a "ladder" of FDs maturing at different times.
- Small savings rates are reviewed separately each quarter. See Part 5: Post Office Small Savings.
Practical steps
- Check your loan statement for the benchmark, the current rate and the remaining tenure.
- If your tenure has stretched a lot, consider raising your EMI or part-prepaying. Our guide on prepaying vs investing helps you decide.
- Understand the true cost of borrowing with our guide to APR.
This article is for general information and education only. It is not financial, tax or legal advice. Rules, rates and limits change often, so check official sources such as the RBI, the Income Tax Department or India Post, or speak to a qualified adviser, before acting.
Next in the series: Part 5: Post Office Small Savings.
