India, Oct. 7 -- The Reserve Bank of India (RBI) on Wednesday announced its latest monetary policy decision, raising the repo rate by 25 basis points to 5.5% from 5.25%. The central bank also changed its policy stance from 'neutral' to 'calibrated tightening'.

The repo rate is one of the RBI's key monetary policy tools and influences borrowing and liquidity conditions in the financial system. But what exactly is the repo rate, how does it work, and what does an RBI rate hike mean for ordinary borrowers and consumers?

Repo is the short form of repurchase agreement. It is a short-term, collateralised borrowing arrangement in which one party sells securities to another and agrees to buy them back at a predetermined date and price.

The rep...