What is the repo rate and how does it change your EMI

The short answer: The repo rate is the interest rate at which the Reserve Bank of India lends money to banks. When it goes up, banks raise the rates on floating-rate loans linked to it, so your EMI or your loan tenure goes up too, usually within three months.

That is not a theory right now. On 7 October 2026 the RBI raised the repo rate from 5.25% to 5.50%, its first increase since February 2023. This guide explains what the repo rate is, how a change travels to your home loan and your fixed deposit, and what you can actually do about it. It is general information, not financial advice.

What is the repo rate, in plain words?

Banks sometimes need to borrow money for a short time, and one place they can borrow from is the RBI. "Repo" is short for repurchase agreement, the kind of short-term loan involved. The interest the RBI charges is the repo rate.

Kotak Mahindra Bank puts it simply: it is "the rate at which the central bank of India, RBI, lends money to all banks". When it rises, banks pay more to borrow, and they tend to pass that cost on to their own borrowers. Think of it as the wholesale price of money. Your loan rate is the retail price.

The rate is set by the RBI's Monetary Policy Committee, or MPC. As the table further down shows, it has met roughly every two months in recent years, and each meeting ends with a decision to raise, cut or hold.

Why did the RBI raise the repo rate in October 2026?

Inflation started rising again. The RBI's policy resolution of 7 October 2026 said "inflation and its outlook are not benign as they were last year" and that "recalibrating the policy rate is imperative". The MPC voted unanimously for the hike and changed its stance to "calibrated tightening". It also said rate cuts are "off the table in the near term", so the next move can only be a hike or a pause.

The Governor's statement gives the reasons in numbers:

• Retail inflation rose to 4.8% in August, from 4.5% in July.
• Onion prices rose about 85% between the end of June and the end of September.
• The monsoon ended about 13% below normal.
• India's crude oil basket averaged US$116.1 a barrel in September, up from US$82.0 in July.

The RBI now expects inflation to average 5.2% for 2026-27, with the October to December quarter at 6.0%. SCC Online's summary confirms the new rate, the stance change and the date of the next meeting: 2 to 4 December 2026. We looked at the food side of this in our story on onion prices and the inflation jump.

How has the repo rate moved in recent years?

The rate has gone down and up a lot in six years. These are the turning points, from StableInvestor's repo rate history, checked against the RBI's October 2026 release and IndMoney's report on the December 2025 cut:

Notice the pattern. Borrowers who took a floating-rate home loan in 2021 saw their rate climb by 2.5 points in under a year. That is why it is worth knowing how your own loan is linked.

How does a repo rate change reach your EMI?

It depends on what your loan is linked to. Look for one of these in your sanction letter.

Since 1 October 2019, the RBI has required banks to link all new floating-rate retail loans, such as home and car loans, to an external benchmark. The repo rate is one of the allowed benchmarks. The rule also says the rate "shall be reset at least once in three months", as reported by The Week and Business Today at the time.

Your loan rate is the benchmark plus the bank's spread. If your bank's repo-linked rate is 8.50% and the repo rate rises by 0.25 points, your rate becomes 8.75% at the next reset. The spread stays the same.

This time, some banks moved within a day. The Free Press Journal reported that Punjab National Bank raised its external benchmark lending rate from 8.10% to 8.35%, and Indian Bank its repo-linked rate from 7.95% to 8.20%, both from 8 October 2026.

How much will your EMI go up?

For most people, a few hundred rupees a month per ₹10 lakh to ₹50 lakh borrowed. Here is our calculation for a 20-year loan where the rate rises from 8.50% to 8.75%:

The Free Press Journal's own example uses a lower starting rate of 7.50%, and gets about ₹767 more a month on a ₹50 lakh loan. The exact number depends on your rate and how many years are left.

Higher EMI or longer tenure: which should you pick?

A lender may keep your EMI the same and stretch the tenure instead. It feels painless, but it costs more.

Take the same ₹50 lakh, 20-year loan. In our calculation:

• Raise the EMI by ₹794 and total interest over the loan rises by about ₹1.9 lakh.
• Keep the EMI and extend the tenure and you pay for about 12 more months, with total interest up by about ₹5.4 lakh.

That is based on the change applying from the first month, so your numbers will be smaller if you are years into the loan. The direction holds either way: a longer tenure means more months of interest.

You have a say in this. An RBI circular of August 2023 requires lenders to give borrowers, at the time of a reset, the option to raise the EMI, extend the tenure, or a mix of both, and to switch to a fixed rate under the lender's board-approved policy. It also says an extended tenure must not lead to "negative amortisation", where your loan grows instead of shrinking. Details are in The Tribune's report on the circular and the Legal 500 summary of the RBI's FAQs.

Will your fixed deposit earn more?

Possibly, but not automatically, and not by the same amount. Deposit rates are each bank's own decision.

• Some lenders moved fast. Bajaj Finance raised its FD rates by 15 to 40 basis points from 7 October 2026, according to Goodreturns.
• Big banks were slower. Upstox found that ICICI Bank revised its rates from 13 October, while HDFC Bank, PNB and Bank of Baroda were still on rates set before the hike. Upstox also cites SBI Chairman C S Setty as indicating banks may not raise deposit rates for two to three months.

The reason is liquidity. The RBI's statement says banks had a daily surplus of ₹5.9 lakh crore on average since August. When banks have plenty of cash, they do not need to pay more to attract deposits.

What can you do this week?

A short checklist:

1. Find your benchmark. Your sanction letter or loan statement says whether you are on a repo-linked rate, MCLR or a fixed rate.
2. Find your reset date. That is when the change will reach you.
3. Ask for the choice. If your bank extends the tenure by default, ask whether a higher EMI suits you better. The RBI's rules give you that option.
4. Compare your spread. If your spread is much higher than what your bank offers new customers, ask about a lower rate. Banks usually charge a fee to switch, so check it is worth it.
5. Watch 2 to 4 December. The RBI has said cuts are off the table for now, so the next move is a hike or a pause.

If you would rather follow decisions like this without reading the full policy each time, see how to stay informed in 5 minutes a day and the best ways to follow Indian business news. And for the other big number season, our guide on how to read quarterly results uses the same calm, step-by-step approach.

This guide is for general information and is not financial advice. For decisions about your own loan, speak to your bank or a qualified financial adviser.

Sources

• RBI: Monetary Policy Statement, resolution of the MPC, 5 to 7 October 2026
• RBI: Governor's Statement, 7 October 2026
• SCC Online: RBI hikes repo rate to 5.50 percent, October 2026
• StableInvestor: RBI repo rate history
• IndMoney: RBI lowers repo rate to 5.25% (December 2025)
• The Week: RBI asks banks to link lending rate to external benchmark (4 September 2019)
• Business Today (PTI): RBI asks banks to link lending rate to external benchmark
• The Tribune: RBI to banks, let loanees opt for fixed interest rate (August 2023)
• Legal 500: FAQs on RBI circular on resetting floating interest rates for EMI-based personal loans
• Free Press Journal: These 6 banks have increased lending rates after RBI's move
• Free Press Journal: How much will EMI rise on ₹20, ₹30 and ₹50 lakh home loans (7 October 2026)
• Goodreturns: Will banks and NBFCs hike FD rates after the repo rate hike (7 October 2026)
• Upstox: HDFC Bank, ICICI Bank, PNB, Bank of Baroda FD rates after the October repo rate hike (14 October 2026)
• Kotak Mahindra Bank: How the repo rate hike affects your home loan EMIs