RBI hikes repo rate by 25bps: What it means and how it impacts you | All FAQs answered

The RBI's 25-basis-point repo rate hike on 7 October is aimed at curbing inflation. This increase could raise borrowing costs for loans, affecting monthly repayments, while potential adjustments to deposit rates may also occur.

On 7 October, the Reserve Bank of India announced a 25-basis-point repo rate hike. It can affect loans, deposits and household budgets. Here is what such an increase means for you.

RBI hikes repo rate: FAQs answered

What is the repo rate?

The repo rate is the interest the RBI charges banks for short-term borrowing. Banks approach the RBI when they need funds for daily operations or to meet customer demands.

What does a 25 basis point hike mean?

One basis point equals 0.01 percentage point. Therefore, 25 basis points means an increase of 0.25 percentage points.

Why does RBI increase the repo rate?

RBI raises rates to help control inflation, which means prices are rising. Higher borrowing costs discourage new loans and reduce spending. Lower demand can help slow price increases.

How does this affect banks?

Banks pay more when borrowing from the RBI. They may pass these higher costs on to customers by increasing loan interest rates.

Will my home loan EMI increase?

Floating-rate loans linked to an external benchmark can become costlier. Your monthly instalment (EMI) or repayment period may increase. The impact depends on how your lender adjusts the loan.

What about car loans and personal loans?

Floating-rate car loans and personal loans linked to an external benchmark can also become costlier. Higher interest can increase monthly repayments or extend the repayment period.