The Reserve Bank of India uses the repo rate to control borrowing costs in the economy. This rate is the interest charged when RBI lends money to banks. Any change in it directly affects loans, deposits and investments.
When the repo rate is reduced, banks can borrow at lower cost. This usually leads to cheaper home and car loans. For example, a ₹50 lakh home loan for 20 years at 8.25 percent interest has an EMI of ₹42,603. If the repo rate falls and the interest drops to 8 percent, the EMI reduces to ₹41,822. Over the full tenure, the borrower saves nearly ₹1.87 lakh. On the other hand, if the repo rate rises and interest goes up to 8.5 percent, the EMI climbs to ₹43,391. This means an extra cost of about ₹1.89 lakh.
Fixed deposit returns also move with repo changes. A ₹1 lakh deposit for five years at 7 percent grows to ₹1.41 lakh. If rates fall to 6.75 percent, maturity value slips to ₹1.39 lakh. If rates rise to 7.25 percent, maturity value increases to ₹1.43 lakh.
Investments in equity and debt funds are influenced too. Lower repo rates support company profits and stock markets. Higher rates raise borrowing costs and can slow growth. Debt funds gain when rates fall but lose value when rates rise.
In short, repo cuts favour borrowers and equity investors, while repo hikes benefit savers but increase loan costs.
