Repo Rate
The rate at which the RBI lends short-term funds to commercial banks.
External benchmark loans reset with the repo rate, so a policy cut flows to EBLR-linked home loan EMIs within a quarter. Deposit rates follow with a lag.
Why Repo Rate matters when comparing products
The Repo Rate influences the cost of borrowing and the returns on deposits across the Indian banking system. For products linked to external benchmarks, such as many home loans, changes in the Repo Rate directly impact interest rates. Understanding its trajectory can help individuals anticipate potential shifts in EMI amounts or deposit yields, which is relevant when evaluating different financial offerings.
Illustrative example
If the Repo Rate decreases by 0.25%, a home loan of ₹50,00,000 linked to an external benchmark might see its interest rate decrease by a similar margin. For an outstanding balance, this could lead to a reduction in the monthly EMI. Conversely, a Repo Rate increase could lead to higher EMIs for such loans.