Every two months, the Reserve Bank of India (RBI) announces whether it will raise, cut or hold its main interest rate, the repo rate. Stock prices often move within minutes of the announcement. This article explains what the RBI decides, how a rate change travels through banks and companies, why some sectors react much more than others, and how to read these decisions calmly.
What the RBI decides
The RBI's Monetary Policy Committee (MPC) meets six times a year. Its main job is to keep inflation close to a target set by the government, while supporting growth. Its main tool is the repo rate: the interest rate at which banks can borrow short-term money from the RBI.
Around the repo rate sit a few related rates. The Standing Deposit Facility (SDF) rate is what banks earn when they park surplus money with the RBI, and the Marginal Standing Facility (MSF) rate is what they pay to borrow in an emergency. Together these form a corridor that keeps short-term market rates close to the repo rate. The RBI also sets the Cash Reserve Ratio (CRR), the share of deposits banks must keep with the RBI, and the Statutory Liquidity Ratio (SLR), the share they must hold in safe assets such as government bonds.
How a rate change reaches companies
A repo rate change does not stay inside the RBI. It travels outwards in steps:
1. Banks' cost of money changes. When the repo rate falls, banks can borrow more cheaply, and short-term market rates follow.
2. Loan rates follow, with a delay. Many home loans and business loans are linked to an external benchmark, often the repo rate itself, so they change quickly. Older loans and fixed-rate borrowing adjust more slowly.
3. Company interest costs change. A company with large borrowings pays less interest after a cut and more after a hike. The effect shows up in profits over the following quarters.
4. Demand changes. Cheaper loans can make it easier for people to buy homes, cars and appliances on credit, and for companies to fund new plants. Higher rates do the opposite.
5. Valuations change. Investors compare shares with safer options such as fixed deposits and government bonds. When interest rates fall, those safer options pay less, so investors may be willing to pay more for each rupee of company profit. When rates rise, the reverse can happen.
Why some sectors react more than others
Not every company feels a rate change in the same way. The biggest difference is how much a company borrows. Companies that build expensive long-life assets, such as power plants, roads, steel plants or buildings, usually borrow heavily, so their interest bill is large compared with their sales. Companies that need little capital, such as software services or many consumer brands, may borrow very little, so a rate change barely touches their profits.
Banks and lenders are a special case. They borrow (through deposits) and lend at the same time, so what matters is the gap between what they earn on loans and pay on deposits. A rate cut can squeeze that gap for a while if loan rates fall faster than deposit rates.
Property and car companies often react to rate news because their customers borrow to buy. Exporters can be affected indirectly, because interest rates also influence the rupee.
Example on PositoAI: interest cost per ₹100 of sales, India
PositoAI's "Where ₹100 of sales goes" figure on each company's PosiFunda page shows how much of every ₹100 of sales went on interest in the latest year. The gap between companies is large: Tata Power paid about ₹8.1, Tata Steel about ₹3.1 and Reliance Industries about ₹2.3, while TCS paid about ₹0.5 and Maruti Suzuki about ₹0.1.
Across 1,876 Indian non-financial companies on PositoAI with this figure, 240 paid ₹5 or more in interest per ₹100 of sales, and 769 paid less than ₹1. For the first group, a change in interest rates can move profits noticeably; for the second, it hardly matters. (Figures from each company's latest yearly results, as on 20 Oct 2026.)
The same pattern in the United States
The pattern is not unique to India. In the US, power company NextEra Energy paid about $16.7 in interest per $100 of sales in its latest year, while Microsoft paid about $0.9. Heavy borrowers feel rate changes in every country.
What the market reacts to
Share prices often move less on the decision itself than on whether it was expected. If most economists expect a cut and the RBI cuts, much of the news is already in prices. A surprise, such as a hold when a cut was expected, can move prices more. The market also reads the RBI's stance (whether it sounds ready to cut further or to pause) and its forecasts for inflation and growth.
Rate decisions are also only one force among many. Company earnings, global markets, oil prices and foreign investment flows can easily outweigh a single rate decision on any given day.
Where to see the RBI's figures
PositoAI's RBI page shows the main policy rates and indicators in one place: repo rate, SDF and MSF rates, CRR, SLR, inflation, the call money rate and the rupee-dollar rate. On 7 Oct 2026 the RBI raised the repo rate by 0.25 percentage point to 5.50%, its first increase in nearly three years, with the SDF at 5.25% and the MSF at 5.75%; CRR stood at 3.00% and SLR at 18.00%.
Common misconceptions
"A rate cut always lifts the market." Not always. If the cut was expected, or if it signals worry about the economy, prices may not rise.
"A rate change affects every company equally." Heavy borrowers feel it much more than companies with little debt.
"Loan rates change the same day." Many loans adjust with a delay, and fixed-rate borrowing does not change until it is renewed.
Frequently asked questions
How often does the RBI change rates?
The MPC meets six times a year and can raise, cut or hold the repo rate at each meeting.
What is the repo rate?
The interest rate at which banks borrow short-term money from the RBI. It is the RBI's main policy rate.
Which sectors are most sensitive to rates?
Usually heavy borrowers such as power, infrastructure, steel and property, and sectors whose customers borrow, such as housing and cars.
Do rate decisions predict where the market will go?
No. They are one influence among many, and the market's reaction depends on what was expected.
How to use this on PositoAI
Check the latest policy rates on the RBI page, and open any company's PosiFunda page to see its interest cost per 100 of sales, its Debt Due Cover Ratio and its Cash Cushion Ratio, which together show how exposed it is to borrowing costs. PosiStep 12 of PosiCourse, PositoAI's free stock market course, explains the balance sheet and debt.
Suggested reading
What is Inflation? · What is a Bond? · What Happens to Stocks When the US Fed Cuts Rates · Interest Rates and Bonds · How the Rupee Affects Indian Companies · What is a Recession?
Summary
The RBI's Monetary Policy Committee sets the repo rate six times a year to keep inflation near its target. A rate change travels through banks' costs, loan rates, company interest bills, demand and valuations. Heavy borrowers such as power, steel and property companies feel it most; companies with little debt hardly notice. Markets react to surprises more than to expected decisions, and rates are only one of many forces on share prices.