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Affordability and More: Understanding What Is Repo Rate


As a common phenomenon for the general public, the term "Repo Rate" may not be familiar to many. However, with its effect on personal finance and home loans, understanding and analyzing it becomes paramount. In this article, we will provide a breakdown of what is repo rate, its impact, and how it shapes the economy.

What is Repo Rate?

The repo rate is the rate at which the central bank lends money to commercial banks, in order to maintain liquidity in the market. Repo stands for "repurchase agreement." In other words, the central bank repurchases government securities from commercial banks at a fixed rate in order to inject liquidity into the economy.

Currently, the repo rate in India is maintained by the Reserve Bank of India (RBI). Any changes to the repo rate have a direct impact on the flow of money throughout the country.

The Market Impact of Repo Rate

The repo rate has a significant impact on the economy. A lower repo rate means that banks can borrow money at a lower rate, making loans more affordable to the customers. On the other hand, a higher repo rate makes borrowing more expensive, resulting in reduced borrowing and spending by customers.

When the RBI increases the repo rate, commercial banks increase their interest rates on loans such as home loans, car loans, and other types of loans. This increase makes it more expensive for customers to borrow money, slowing down spending in the economy. As a result, it can lead to a reduction in the inflation rate, creating stable pricing in the market.

Repo Rate and Home Loans

For many individuals, home loans are a fundamental aspect of their personal finance. Therefore, it is natural to consider how repo rate changes affect home loan interest rates.

When the RBI increases the repo rate, banks hike their lending rates, subsequently increasing home loan rates as well. For example, a home loan borrower with a floating interest rate of 8.50 percent may see their interest rate increase to 9 percent after an RBI repo rate increase.

SLR Rate

Along with repo rates, the RBI also maintains the Statutory Liquidity Ratio (SLR). The SLR is the percentage of a bank's deposits that must be kept as reserves in the form of government securities. Banks must maintain this liquidity ratio to ensure that they have enough funds to meet the demand of depositors.

The current SLR rate in India is 18 percent. It is a tool for the RBI to regulate the amount of money that banks can lend, by monitoring the amount of money they hold in reserves. The higher the SLR rate, the lower the amount of money available for the banks to lend. As a result, a higher SLR rate usually leads to an increase in loan rates.

Benefits of Using a Home Loan EMI Calculator

An EMI (Equated Monthly Instalment) calculator helps you calculate the monthly payment you will make towards the loan. This tool allows you to review various home loan options and select a plan that fits your financial needs.

Using a home loan EMI calculator helps you determine the monthly repayment amounts, including interest or principal amount. Thus helping you in financial planning, creating a budget, and managing other expenses accordingly. Therefore, it is a fantastic tool to help you stay within your budget, and avoid overpaying interest.


In conclusion, it is vital to understand what is repo rate and its impact on your personal finances, especially home loans. This information can help you make informed decisions about your financial future. Take advantage of the latest government schemes and special rates being offered by banks. And don't forget to use a home loan EMI calculator to make the appropriate financial decisions based on your budget and financial position.

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