The Repo Rate stood at its highest level since August 2018, after the Reserve Bank of India today hiked the Repo rate by 35 basis points to 6.25 percent.

Repo rates are the interest rates charged by the Reserve Bank of India to commercial banks when borrowing money. Banks' borrowing costs are increased if the central bank increases the repo rate.

The hike is the fifth consecutive one for this financial year. Earlier, the RBI had raised the rate by 40 basis points in May and by 50 basis points in June, August and September respectively. Market experts had anticipated a 35 baisis point hike as inflation continued to remain above the 6% mark for the tenth consecutive month.

In addition to that, the RBI governor announced that the MPC remained focused on withdrawing accommodations, and that the standing deposit facility (SDF) rate stands at 6.00 percent, as well as the marginal standing facility (MSF) rate and the Bank Rate at 6.50 percent.

He also noted that the core inflation indicator indicates stickiness during his speech and that the policy rate remains accommodative. While, global developments and weather influence the inflation outlook over the medium term.

The rural sector, manufacturing and services sectors have contributed to India's economic growth, the governor said.

What does it mean for loan borrowers?

While interest rates for fixed-rate loans like personal loans remain unchanged throughout the teure, some retail loans including home loans and auto loans change in tandem with the repo rate as they are linked to an external benchmark set by the central bank (RBI).

Due to this any change in the repo rate is passed on to the borrowers. In this case as the Repo Rate is increased, the repo rate linked Lending rate (RLLR) of banks also increases.