How RBI Policy Rate Changes Reach Your Loan EMI
Repo rate, external benchmarks and reset dates: the path from a central bank decision to your monthly instalment.
Candlesticks Desk•
When the Reserve Bank of India changes the repo rate, the effect on borrowers is not always immediate. For most floating-rate retail loans, the interest rate is linked to an external benchmark such as the repo rate, plus a lender-specific spread.
The change reaches your loan at the next reset date defined in your agreement. Lenders may then either adjust your EMI or, more commonly, change the loan tenure while keeping the EMI constant, which can quietly extend how long you stay in debt.
It is worth checking your loan statement after every policy move, asking whether the tenure or the EMI has changed, and considering part-prepayments when rates rise. Deposit rates tend to follow policy changes too, though often with a lag.
This explainer is for information only.
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