The interest rate at which the RBI lends money to banks for short periods against government securities, under a repurchase agreement; it is the main policy rate in India, signalling the stance of monetary policy and anchoring short-term market interest rates.
In a repo transaction, a bank that needs money sells government securities to the RBI and agrees to buy them back at a slightly higher price on a fixed date, often the next day. The difference between the sale and repurchase price works out as the interest, and that rate is the repo rate. In economic substance it is a secured loan from the central bank, with the securities serving as collateral. The reverse arrangement, in which banks park surplus money with the RBI, used to be called the reverse repo.
The repo rate became the single policy rate in India in 2011, after the Deepak Mohanty working group suggested a clearer framework. Since 2016 it has been set by the Monetary Policy Committee, which aims at a 4% inflation target. This page focuses on how the instrument works and how changes pass through to the economy. The committee's composition and the inflation target are covered in the main lesson.
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