Updated October 2026. Based on the official sources listed at the end.
Understanding how the Reserve Bank of India (RBI) manages interest rates helps you manage your personal finances and monthly budget. When the central bank changes its main policy rate, it directly influences the cost of borrowing money for ordinary citizens, including those paying off home loans. Knowing these rules allows borrowers to make informed choices regarding their equated monthly instalments.
Changes in the benchmark rates set by the central bank ripple through the financial system, directly impacting floating-rate home loans linked to an external benchmark under the External Benchmark Lending Rate (EBLR) regime. Borrowers need to understand how banks pass on these changes and what options are available when loan terms reset.
Key facts
- The Monetary Policy Committee (MPC) voted unanimously to increase the policy repo rate by 25 basis points to 5.50 per cent during its meeting from October 5 to 7, 2026.
- The standing deposit facility (SDF) rate stands adjusted at 5.25 per cent, while the marginal standing facility (MSF) rate and the Bank Rate stand at 5.75 per cent as of October 2026.
- The MPC changed its monetary policy stance to calibrated tightening, signaling that rate cuts are off the table in the near term.
- Regulated entities like banks and housing finance companies are required to communicate changes in benchmark rates, EMIs, and tenures to borrowers.
- Borrowers may be provided the option by lenders, at their discretion, to switch over to a fixed interest rate as per the lender’s Board-approved policy.
The Role of the Monetary Policy Committee and the Repo Rate
The Monetary Policy Committee (MPC) is responsible for deciding the policy repo rate under the liquidity adjustment facility (LAF). During its meeting held from October 5 to 7, 2026, the MPC increased the policy repo rate by 25 basis points, bringing it to 5.50 per cent. At the same time, the MPC shifted its policy stance to calibrated tightening. This signals that given current economic conditions, rate cuts are off the table in the near term, and any future policy action will either be a rate hike or a pause depending on economic developments.
As a result of the repo rate change, other related rates also adjusted: the standing deposit facility (SDF) rate stands at 5.25 per cent, and the marginal standing facility (MSF) rate alongside the Bank Rate stand at 5.75 per cent.
How Rate Changes Affect Your Home-Loan EMI and Tenure
For home loans linked to an external benchmark under the External Benchmark Lending Rate (EBLR) regime, banks are required to monitor the transmission of changes in the benchmark rate to the actual lending rate. When a benchmark rate changes, lenders are mandated to clearly communicate the possible impact on the loan leading to changes in the EMI, the loan tenor, or both.
At the time of sanction or during interest rate resets, borrowers are given choices regarding how to manage adjustments. Borrowers can choose an enhancement in their EMI, an elongation of the loan tenor, or a combination of both options. Additionally, borrowers retain the choice to prepay their loan either in part or in full at any point during the tenor, subject to extant instructions on foreclosure charges and prepayment penalties.
Borrower Options and Transparency Rules
Regulated lenders may, at their option, provide borrowers a choice to switch over from a floating interest rate to a fixed interest rate, in accordance with the lender’s Board-approved policy. This policy may specify the number of times a borrower is allowed to switch during the entire loan tenor. Any applicable charges for switching to a fixed rate or other administrative costs must be transparently disclosed in the initial sanction letter and when those charges are revised.
To ensure transparency, lenders must share or make accessible a quarterly statement to borrowers enumerating the principal and interest recovered till date, the EMI amount, the number of EMIs left, and the annualized rate of interest or Annual Percentage Rate (APR) for the entire tenor of the loan. Furthermore, lenders must ensure that lengthening the loan tenor does not result in negative amortisation.
Frequently asked questions
What is the repo rate?
The repo rate, formally the policy repo rate under the liquidity adjustment facility (LAF), is the Reserve Bank of India’s key policy interest rate. It is decided by the Monetary Policy Committee (MPC).
Who decides the repo rate changes?
The repo rate is decided by the Monetary Policy Committee (MPC) of the RBI, which held its 63rd meeting from October 5 to 7, 2026, under the chairmanship of RBI Governor Shri Sanjay Malhotra.
What is the current repo rate as of October 2026?
The policy repo rate is 5.50 per cent, following a 25 basis point increase decided by the MPC during its October 5 to 7, 2026 meeting.
Can I switch my floating-rate home loan to a fixed rate?
Regulated entities may, at their option, provide a choice to borrowers to switch over to a fixed rate based on their Board-approved policy, which also outlines how many times a borrower can switch during the loan.
What information must banks provide to borrowers quarterly?
Lenders must provide a statement at the end of each quarter showing the principal and interest recovered to date, the EMI amount, the number of EMIs left, and the annualized rate of interest or APR for the entire loan tenor.
Official sources
- RBI: Monetary Policy Statement, Resolution of the MPC, October 5 to 7, 2026
- RBI: Governor's Statement, October 7, 2026
- RBI circular: Reset of Floating Interest Rate on EMI based Personal Loans
This explainer is for general information only and is not financial, tax or legal advice. Rules change; check the official source for the latest position.
Official RBI, SEBI, Government and Defence updates as they happen.
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