What is repo rate and how does it impact your home loan EMIs?

Repo rate is defined as the rate of interest at which the  Reserve Bank of India (RBI) lends money to commercial banks.

”Repo” stands for Repurchase Agreement or Repurchasing Option. Banks avail loans from the central bank (the RBI) by selling eligible securities.

An agreement between the central bank and the commercial bank will be made to repurchase the securities at a price that is predetermined. This is done when banks face a shortage of funds or need to maintain liquidity in volatile market conditions.

The RBI uses the repo rate to control inflation rates

Every time the RBI makes a change in the repo rate, home buyers are told that the cost of borrowing will become higher/lower because of the upwards/downward change in the lending rate. As the repo rate has such a significant bearing on your financials, it is important to know everything about it, and how it impacts your home loan liability.