The repo rate (repurchase rate) is the interest rate at which the central bank lends money to commercial banks. When banks need short-term funds, they borrow from the central bank by pledging government securities as collateral and repurchase them later.
The repo rate is the most powerful monetary policy tool. When the central bank raises the repo rate, borrowing becomes more expensive for banks, which pass the cost to customers through higher loan rates — cooling the economy and controlling inflation. Cutting the repo rate does the opposite.
In India, the RBI's repo rate was around 6.5% as of early 2025. In the US, the equivalent is the Federal Funds Rate. The European Central Bank has its main refinancing rate. Every change in the repo rate ripples through the entire economy — affecting home loans, business credit, bond markets, and currency values.