The repo rate is the rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks against the collateral of government securities. It is the principal lever of Indian monetary policy: when RBI raises the repo rate, borrowing costs rise across the economy, slowing demand and inflation.
Since October 2019, all new floating-rate retail loans (home, personal, MSME) at scheduled commercial banks have been required to be linked to an external benchmark — typically the repo rate — with periodic resets (at least quarterly). The actual lending rate is repo + spread, where spread accounts for cost of funds, operating costs, and credit risk.