RBI’s three-day meeting begins today:Repo rate may rise by 0.25%, making loans more expensive; EMIs will also increase

The Reserve Bank of India’s Monetary Policy Committee will begin its three-day meeting today, Monday, 5 October. Experts believe the Reserve Bank may raise the repo rate by 0.25% this time. If this happens, it will be the first increase in the repo rate since February 2023, taking it from 5.25% to 5.50%. RBI Governor Sanjay Malhotra will announce the decisions taken at the meeting on 7 October. Repo rate remained unchanged for four consecutive meetings after a 1.25% cut in 2025 The Reserve Bank cut the repo rate by 1.25% on four occasions in 2025, taking it from 6.50% to 5.25%. The repo rate has remained unchanged in all four meetings held so far in 2026. Festive season to affect customers’ pockets and loans The October meeting is being held during the country’s peak festive season. During this period, demand for credit, or loans, is higher in the automobile, electronics and housing segments. If the RBI raises the repo rate by 0.25%, banks’ external benchmark lending rates (EBLRs) will rise immediately. This will make new loans more expensive and could increase the EMIs of existing home-loan and auto-loan customers, potentially affecting consumer demand during the festive season. What is the repo rate, and how does it affect you? Why does the Reserve Bank raise and lower the repo rate? The repo rate is a tool to fight inflation. When inflation is high, the central bank raises it to try to reduce the flow of money in the economy. If the policy rate is high, borrowing from the central bank becomes more expensive for banks. In turn, banks make loans more expensive for customers. This reduces the flow of money in the economy. As the flow of money declines, demand falls and inflation decreases. When the economy is going through a difficult period, the flow of money needs to be increased to support recovery. In such a situation, the central bank cuts the policy rate. This makes borrowing from the central bank cheaper for banks, and customers can also obtain loans at lower interest rates.