RBI's rate hike, explained: how a repo move reaches your loan EMI and your FD

What the RBI decided

The RBI's Monetary Policy Committee resolution of 7 October 2026 set:

• Policy repo rate: 5.50% (up from 5.25%)
• Standing Deposit Facility (SDF) rate: 5.25% (up from 5.00%)
• Marginal Standing Facility (MSF) rate: 5.75% (up from 5.50%)
• Stance: changed to "calibrated tightening"

This explainer covers how that decision travels to households. It says nothing about the RBI's next move. For the decision itself, see our RBI MPC story.

The plumbing: from repo to your EMI

1. Policy corridor. Repo is the anchor. SDF is the floor, the rate at which banks park surplus cash with the RBI, and MSF is the emergency ceiling. Overnight money-market rates trade inside this corridor, so moving it moves banks' short-term cost of funds.

2. Bank benchmark. Banks price floating retail loans off a published benchmark.

   • External benchmark (EBLR / RLLR). Most new floating home and personal loans are linked directly to the repo rate. A repo change flows into the benchmark mechanically, and the loan resets on a schedule set by RBI rules and your loan agreement (at least once every three months).
   • MCLR (Marginal Cost of Funds based Lending Rate). Older loans, and some corporate loans, follow the bank's own MCLR, which tracks its funding costs. MCLR moves more slowly and resets at intervals named in the contract, often six or twelve months.

3. Spread. Your rate is the benchmark plus a spread, which reflects your credit profile and the product. Under RBI rules the spread generally stays fixed for the life of the loan unless your credit risk changes materially. A repo move changes the benchmark, not your spread.

4. Reset. The new rate applies from your next reset date. That's why two neighbours with identical loans from different banks, or on different benchmarks, can see the change weeks or months apart.

5. EMI or tenure. At reset, the lender either raises the EMI or keeps it the same and extends the remaining tenure. The RBI requires lenders to tell borrowers and, at reset, to offer a choice between these options and switching to a fixed rate where the bank's policy allows it. Check your lender's notice.

Seven listed banks have already filed 25 bps increases in their repo-linked rates: see which banks moved and by how much.

How the EMI math works (illustration)

Illustrative only — not an offer, a forecast, or any bank's actual rate. Assumptions: a ₹50 lakh home loan, 20 years (240 monthly instalments), floating rate 9.00% a year before the hike and 9.25% a year after (the full 25 bp passed through), monthly reducing balance, change applied from the first instalment.

	Rate	Monthly EMI	Tenure
Before	9.00%	about ₹44,986	240 months
Option A: higher EMI	9.25%	about ₹45,793 (≈ ₹807 more a month)	240 months
Option B: same EMI	9.25%	₹44,986	about 253 months (≈ 13 more)

• Option A, higher EMI: roughly ₹807 more a month. Over the full 20 years that adds up to about ₹1.94 lakh in extra interest.
• Option B, same EMI: the borrower keeps paying ₹44,986 and the loan stretches by about 13 months, to around 253 months instead of 240.

Different starting rates give slightly different answers. Our bank-rate story uses 8.50% → 8.75% on the same ₹50 lakh, 20-year loan, which works out to about ₹795 more a month. Both are illustrations; your own figure depends on your benchmark, spread and outstanding balance.

A loan already several years in has a smaller outstanding principal, so the rupee effect is smaller. The direction is the same.

The formula behind it: EMI = P × r × (1 + r)^n / ((1 + r)^n − 1), where P is the principal, r is the monthly interest rate (annual rate ÷ 12 ÷ 100) and n is the number of months.

The saver's side: FD rates

Higher policy rates raise what banks pay for wholesale funds, and that usually pushes deposit rates up over time. FD rates aren't linked to repo by formula. Each bank sets its own card based on its funding needs, so changes arrive unevenly and only on new or renewed deposits.

Illustrative: on a ₹5 lakh one-year FD, an extra 0.25 percentage points comes to about ₹1,250 more interest a year before tax (₹5,00,000 × 0.25%, simple annual interest).

Fixed vs floating, in one line each

• Floating: the rate follows the benchmark both ways, up now and down whenever rates ease.
• Fixed: the rate is locked, often starting higher, with switching charges and terms set by the lender. Many "fixed" retail loans are fixed only for an initial period, so read the contract.

Trade-offs and uncertainty

• Transmission isn't one-to-one or instant. Repo-linked loans pass changes through fastest. MCLR loans lag, and deposit rates lag further.
• Bank-specific spreads and resets mean your outcome depends on your contract, not the headline.
• Tenure extension feels painless but costs more in total interest.
• This explainer covers how the system works. It is not personalised financial advice and doesn't recommend any loan, deposit, or refinancing product.

What to watch next

• Your lender's reset notice: the new rate, the effective date, and whether it changes your EMI or your tenure.
• Bank benchmark announcements: published changes to EBLR/RLLR and MCLR.
• Bank FD rate cards for new and renewed deposits.
• MoSPI September CPI, due 12 October 2026: the inflation input behind policy. It's an input to watch, not a rate call.

Not investment advice. No politics.

Sources

• Reserve Bank of India — Resolution of the Monetary Policy Committee, 7 October 2026 (repo 5.50%, SDF 5.25%, MSF 5.75%, stance "calibrated tightening") — https://www.rbi.org.in/
• Reserve Bank of India — External Benchmark Based Lending, RBI/2019-20/53, DBR.DIR.BC.No.14/13.03.00/2019-20, 4 September 2019 (new floating-rate retail loans benchmarked externally from 1 Oct 2019; reset at least once in three months) — https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11677
• Reserve Bank of India — Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans, RBI/2023-24/55, DOR.MCS.REC.32/01.01.003/2023-24, 18 August 2023 (as updated 1 October 2025) — https://www.rbi.org.in/
• Standard amortising-loan (EMI) formula. The worked figures are illustrative and computed in-house.
• Capital Chronicle: Seven banks lift repo-linked rates 25 bps · RBI MPC hikes repo 25 bps to 5.50%

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