Repo vs Reverse Repo Rate: Key Differences Explained

Let’s imagine the RBI (Reserve Bank of India) is the “school principal,” and all banks in India are like “students” who sometimes run out of pocket money. There are two types of pocket money arrangements between the banks and the RBI: Repo Rate vs Reverse Repo Rate.

What is the Repo Rate?

Repo Rate is the interest rate at which the RBI lends money to banks when banks are in need of cash. In simple words, Repo Rate = RBI’s interest rate for giving short-term loans to banks. The higher the repo rate, the more expensive loans become. The lower the repo rate, the cheaper it is to borrow, which boosts economic activity.

For example, you own a small kirana store in Delhi. You need to buy stock for Diwali, but you don't have enough cash right now.

So, you go to your friend (the bank) and ask for a loan. But the bank also has many customers like you needing loans, and the bank itself is running low on cash.

Now what? The bank goes to the RBI, which is like the "bank for all banks." It says, "Hey RBI, I need ₹1,000 crore to meet demand. Can you lend it?" RBI replies, "Sure, take it, but you'll need to return it soon and pay interest at the Repo Rate (say, 5.50%)."

So, the bank borrows the money at 5.50%, gives you a loan at a higher rate (say, 9%), and earns the difference.

Real-Life Based Example

In 2020, due to COVID-19 lockdowns, businesses weren’t doing well. Banks didn’t have enough cash because many borrowers had stopped paying EMIs.

RBI reduced the Repo Rate to 4%, meaning banks could borrow cheaply. HDFC, SBI, ICICI, and other banks then gave out loans at lower interest rates to revive the economy.

So:

• You (the customer) got a cheaper home loan.
• The bank got money easily from the RBI.
• The economy got a boost.

How Does Repo Rate Work?

Here's how the repo rate works:

• Banks need money to give out loans (like home loans, car loans).
• If banks don't have enough cash, they borrow from the RBI.
• RBI lends this money, but charges interest, that’s the Repo Rate.

The higher the repo rate, the more expensive it is for banks to borrow. This means:

• Banks give fewer loans.
• Loan interest rates for people like us go up.
• This slows down the economy and helps control inflation.

RBI Repo Rate History

From May 2020 to May 2022, the RBI kept the repo rate at 4.00%. After that, the rate was slowly increased because of rising prices and changes in the economy. The latest change happened on June 6, 2025, when the repo rate was lowered to 5.50%. The following is the repo rate maintained by the RBI:

Date	Repo Rate
06-06-2025	5.50%
09-04-2025	6.00%
07-02-2025	6.25%
06-12-2024	6.50%
08-10-2024	6.50%
08-08-2024	6.50%
07-06-2024	6.50%
06-04-2024	6.50%
08-02-2024	6.50%
08-12-2023	6.50%
10-08-2023	6.50%
08-06-2023	6.50%
06-04-2023	6.50%
08-02-2023	6.50%
07-12-2022	6.25%
30-09-2022	5.90%
05-08-2022	5.40%
08-06-2022	4.90%
04-05-2022	4.40%
08-04-2022	4.00%
10-02-2022	4.00%
08-12-2021	4.00%
09-10-2021	4.00%
06-08-2021	4.00%
04-06-2021	4.00%
07-04-2021	4.00%
05-02-2021	4.00%
04-12-2020	4.00%
09-10-2020	4.00%
06-08-2020	4.00%
22-05-2020	4.00%
27-03-2020	4.40%

What is the Reverse Repo Rate?

Reverse Repo Rate is the interest that the RBI pays to commercial banks when banks park (deposit) their extra money with the RBI. In simple words, Reverse Repo Rate = Interest RBI gives to banks for parking extra funds safely.

• Higher Reverse Repo Rate: Banks prefer to park money with the RBI (safe, less risk).
• Lower Reverse Repo Rate: Banks give more loans to the public (riskier, higher return).

For example, you are a shopkeeper and have extra cash that you don't want to keep at home overnight, so it's risky. You have two options:

• Lend the money to a stranger and maybe earn more, but it's risky.
• Keep the money safely with your trusted friend (RBI in this case) and earn a small but safe interest.

Banks do the same thing. When they have extra cash and no immediate need to give loans, they deposit that money with the RBI for safety. The RBI says, “Thanks, I’ll keep your money safe and pay you Reverse Repo Rate interest, say, 3.35%.

Real-Life Based Example

During the 2020 COVID-19 lockdown, the Indian economy slowed down. People weren’t taking loans. Businesses weren’t borrowing. So banks had a lot of idle money.

Instead of taking risks lending to weak borrowers, banks parked their excess money with the RBI. In return, RBI paid them interest at the Reverse Repo Rate (which was 3.35% then).

So:

• Banks kept their money safe.
• RBI controlled the excess money supply in the economy.
• Inflation was managed better.

How Does Reverse Repo Rate Work?

Here's how the repo rate works:

• Banks have extra money that they’re not using (maybe because people aren't taking many loans).
• Instead of lending it out and taking a risk, they give that money to the RBI, which is safe.
• RBI pays interest to the bank for holding that money, this interest is the Reverse Repo Rate.

If the RBI increases the reverse repo rate:

• Banks find it more attractive to keep money with the RBI than to give loans.
• Less money flows into the market.
• Inflation can be controlled.

RBI Reserve Repo Rate History

From May 2020 to April 2025, the RBI kept the reverse repo rate at 3.35%. As of June 2025, the repo rate is 5.50%, but the reverse repo rate is still 3.35%. This shows the RBI has not changed the reverse repo rate for several years, keeping it steady for how much interest banks earn on money kept with the RBI:

Date	Reverse Repo Rate
09-Apr-2025	3.35%
07-Feb-2025	3.35%
06-Dec-2024	3.35%
09-Oct-2024	3.35%
08-Aug-2024	3.35%
07-Jun-2024	3.35%
06-Apr-2024	3.35%
08-Feb-2024	3.35%
08-Dec-2023	3.35%
06-Oct-2023	3.35%
10-Aug-2023	3.35%
08-Jun-2023	3.35%
06-Apr-2023	3.35%
08-Feb-2023	3.35%
07-Dec-2022	3.35%
30-Sep-2022	3.35%
05-Aug-2022	3.35%
08-Jun-2022	3.35%
04-May-2022	3.35%
08-Apr-2022	3.35%

Difference Between Repo Vs Reverse Repo Rate

Here are the key differences between repo vs reverse repo rate:

Feature	Repo Rate	Reverse Repo rate
Who borrows?	Impact on the economy.	RBI borrows from banks.
Who pays interest?	Banks pay interest to the RBI.	RBI pays interest to banks.
Why does it happen?	When banks need money.	When banks have extra money.
Interest rate effect	High rate = fewer loans given to the public.	High rate = banks avoid lending, park with the RBI.
Impact on the economy	Controls inflation by making loans costly.	Controls liquidity by pulling money from the market.
If it goes up	Your home loan EMI may increase.	Banks might stop giving loans and prefer parking money with the RBI.

Also read: What are SLR and CRR in Banking?

Conclusion 

In conclusion, understanding repo and reverse repo rates isn’t just for finance nerds. It helps you figure out why your loan EMIs are going up, why your FD rates are stuck, and what the RBI is really doing behind the scenes. We hope this blog has been helpful to you.