Guide · Markets and macro · Updated 2026-09-23

The repo rate is the middle of a corridor, and liquidity decides where the overnight rate trades inside it

The Reserve Bank does not set the rate at which banks lend to each other overnight. It stands ready at two prices, auctions reserves close to a third, and lets the cash in the banking system decide where the market rate settles. This page is that mechanism; the market's reaction on policy day is covered in the guide to trading around RBI policy days.

A corridor with a price in the middle, not a price

The textbook line, the rate at which the Reserve Bank lends to banks, suggests a window where a bank can borrow at that price. For banks there is none. The facilities listed with the revised framework of February 2020 (Press Release 2019-2020/1900) include no fixed rate repo, and neither does the list annexed to the framework of 30 September 2025 (Press Release 2025-2026/1201). Short-term money comes through repo and reverse repo auctions whose size the Bank decides, and the only windows open to banks on demand sit 25 basis points either side of the repo rate.

What the Bank steers is its operating target, the weighted average rate on overnight call money: unsecured lending among banks and primary dealers, traded from 9 AM to 5 PM under the call, notice and term money directions of 2021. It is a small market. On 22 September 2026 it traded ₹15,782 crore, against ₹5,51,740 crore in tri-party repo, according to that day's Money Market Operations release. It is the target because it prices reserves between the institutions that hold them, and reserves are what the corridor acts on. The collateralised rates follow it most days and can leave the corridor altogether.

Four prices, and what a bank can do at each

Each rate is best read as an action a bank can take and the limit on it, because the limits explain most of what is measured further down.

Until April 2022 the floor was the fixed rate reverse repo, under which the Bank absorbed cash by handing over government securities, so its absorption was capped by the securities it held. The standing deposit facility, opened on 8 April 2022 under the power added to section 17 of the RBI Act in 2018, takes deposits with no collateral and no ceiling. The same day restored the corridor to 50 basis points from its pandemic width of 90. The fixed rate reverse repo was kept at 3.35 per cent for discretionary use, which is why it still appears among the Bank's current rates, 190 basis points under the repo rate. A page that calls it the floor is describing 2021.

Three terms shape everything that follows. SDF balances do not count toward the cash reserve ratio, which banks meet as an average of 3 per cent of net demand and time liabilities (NDTL) over each maintenance period and at least 90 per cent of that every day, so required reserves cannot be parked there. The SDF and MSF windows open at 7 PM, two hours after the call market closes. And the MSF lends only against securities held beyond the statutory liquidity requirement, plus a dip of up to 2 per cent of NDTL into it. The floor is unlimited; the ceiling is rationed.

Liquidity decides which window is at the margin

Each evening a bank is long or short of the reserves it must hold. A long bank will not lend in the call market below the 5.00 per cent it can earn at the SDF, unless it has no access; a short bank will not pay above the 5.50 per cent MSF, unless that is out of reach. When the system is long, lenders bid the rate toward the floor; when it is short, borrowers bid it toward the ceiling. The rate sits at the repo rate only when the Bank's auctions leave the system near balance.

The aggregate is set mostly by flows the banks do not control: currency withdrawn by the public, taxes paid into the government's account at the Reserve Bank, and the Bank's own dollar sales, which drain the rupees the buyers pay. From October 2025 to mid March 2026 currency drained ₹3.34 lakh crore and net dollar sales ₹3.14 lakh crore, while the Bank's bond purchases added ₹5.88 lakh crore (Monetary Policy Report, April 2026, Table II.1). A foreign exchange operation withdraws rupees as a side effect; an open market operation puts them back.

The response is not a straight line. Fitting daily data from January 2012 to March 2026, the Bank found that a surplus of 0.6 to 1.1 per cent of NDTL holds the call rate 5 to 10 basis points under the repo rate and a deficit of 0.4 to 0.7 per cent holds it 5 to 10 over, while beyond a point extra surplus barely moves it and a deepening deficit pushes it up without limit (Box II.1 of the same report). An unlimited floor absorbs any surplus at one price; a rationed ceiling runs out.

Where the call rate actually sat, April 2022 to September 2026

The Bank publishes a Money Market Operations release every working day for the previous date. Of the 1,570 in its archive for April 2022 to September 2026, 1,188 dates from the opening of the SDF carry a call rate, and 954 are used here. The 234 set aside are mostly Fridays and Saturdays on which the overnight call market traded only a few hundred crore, typically because lending across a weekend is booked as notice money, plus the eight days on which the corridor itself moved. The corridor on each date was read from the SDF and MSF rates in that day's release and matched the committee's decisions throughout.

The call rate sat within 5 basis points of the repo rate on 21 per cent of sessions, in the lower half of the corridor on 34, the upper half on 30, below the floor on 7 and above the ceiling on 8. It tracks the liquidity panel week for week: below the floor in the surplus of 2022, at the ceiling through the deficit, which reached ₹3.46 lakh crore on 24 January 2024, in the lower half through the surplus of mid 2025, and at the floor again in September 2026.

The ordering runs monotonically from the deepest deficit to the largest surplus. In surpluses above half a per cent of NDTL the measured averages sit within 7 basis points of the Bank's fitted curve. Nearer balance and in deficit they run well above it: a deficit under half a per cent left the call rate 13 basis points over the repo rate on average, where the curve implies about 1. In this period a small shortage sent the rate most of the way to the ceiling.

Over the tightening the repo rate rose 250 basis points and the average call rate 303, because the cycle began with the call rate 44 basis points under the repo rate, below the floor, in a surplus of about ₹6 lakh crore, and spent the two-year hold at 6.50 per cent an average of 9 above it. Over the easing the repo rate fell 125 and the call rate 136. The operative rate moved further than the policy rate both ways.

The measurement was checked against the Bank's own figures. Its statements publish the average spread of the call rate over the repo rate for stated periods, and the same averages computed from the sessions used here agree with all seven within 3 basis points, four of them within one. Keeping the thin sessions pulls every average down, which is why they are set aside.

The floor leaks, and the ceiling is not a wall

The call rate printed below the SDF rate on 68 sessions, 59 of them in 2022; the Governor's statement of 4 May 2022 noted the breach and put it down to the surplus parked at the SDF. A floor binds only a lender who can use it. The call market admits regional rural, cooperative and payment banks alongside commercial banks and primary dealers, while the SDF is open to participants in the liquidity adjustment facility; standalone primary dealers gained access only in September 2025.

The collateralised market leaks further. The tri-party repo rate averaged below the SDF rate on 196 of the 954 sessions and fell to 4.45 per cent in September 2026. Its lenders include mutual funds and other non-banks with no account at the Bank; even the 2020 special liquidity facility for mutual funds was routed through banks (Press Release 2019-2020/2276). A bank that borrows there below 5.00 per cent and places the cash at the SDF earns the gap, and that trade, not the floor, is what pulls the rate back.

The ceiling gave way on 80 sessions, 50 of them in 2023. The MSF lends only against spare eligible securities, and its window opens only after the call market has closed. A bank without spare securities, or unwilling to wait for the evening window, has no ceiling. On 30 March 2026, the last trading day of the financial year, the call rate averaged 6.90 per cent against an MSF rate of 5.50, with the system in a surplus of ₹2.45 lakh crore. An aggregate surplus does not help the bank that needs cash on its balance sheet date.

September 2025 changed the tools, not the response

The framework of 30 September 2025 kept the call rate as the target, kept the symmetric corridor, and restated that the Bank would endeavour to align the call rate with the repo rate by keeping liquidity at an optimum level, an aim the April 2026 Monetary Policy Report describes as reiterated rather than new. What changed were the tools (Press Release 2025-2026/1201): mainly 7-day auctions replaced the 14-day main operation, announced normally at least a day ahead, and standalone primary dealers gained the SDF and all repo operations. The 90 per cent daily reserve minimum was retained. On 15 December 2025 the reserve maintenance period moved from the Friday-anchored fortnight to half months, 24 cycles a year instead of 26 or 27 (Monetary Policy Report, April 2026). Explanations built around the reporting Friday and the 14-day auction describe a system that has gone.

The auction rules turn the objective into prices. A reverse repo bid at or above the repo rate is rejected (Press Release 2019-2020/1947) and a repo bid at or below it is rejected (Press Release 2021-2022/1572), so auctions absorb at no more than 5.24 per cent and inject at no less than 5.26. The overnight reverse repo of 23 September 2026 took ₹75,026 crore at exactly 5.24. The rules fix the price; the amount is what moves the call rate.

Where both periods have sessions, the averages since the change sit on the old line, within 4 basis points in every bucket from a small deficit to a surplus of 1.5 per cent of NDTL: −6 against −8 at a surplus of half to one per cent, −13 against −14 at one to one and a half, +14 against +13 in a small deficit. Only the largest surpluses show shallower averages, on 23 sessions. What changed is the range of liquidity the Bank allowed: 135 sessions had a deficit deeper than half a per cent of NDTL before the change and none since, so the call rate has cleared the ceiling on 1.4 per cent of sessions since, against 10 per cent before.

September 2026 is the test. From 1 to 17 September the surplus averaged ₹9.5 lakh crore, 3.5 per cent of NDTL. The Bank absorbed an average of ₹4.2 lakh crore a session through new reverse repos at 5.24 per cent, on top of those still outstanding from earlier days, and the call rate still averaged 23 basis points below the repo rate, at worst 30. Only when the surplus fell to ₹4.4 lakh crore by 22 September was it back at 5.24. The commitment to align the rates is a commitment about quantity, met with a lag. Nor is the net surplus the quantity being managed: on 49 of the 193 surplus sessions since the change the Bank also lent through a repo auction, against 56 of 479 before, a sign that the aggregate says little about which banks hold the cash.

Transmission runs on contracts, and contracts reset slowly

Money market rates follow within days: to 3 December 2025, a 100 basis point cut was followed by falls of 110 in the call rate, 113 in the three-month Treasury bill and 140 in three-month certificates of deposit (Governor's statement, 5 December 2025). Loans and deposits follow their contracts. Since 1 October 2019 new floating rate personal and retail loans, and loans to micro and small enterprises, must be linked to an external benchmark and reset at least every three months (circular DBR.DIR.BC.No.14/13.03.00/2019-20); most use the repo rate. At the end of December 2025, 65.4 per cent of banks' floating rate loans were externally linked and 32.0 per cent tied to the MCLR, the internal benchmark reset less often. The externally linked share was 94.0 per cent at foreign banks, 89.3 at private banks and 50.6 at public sector banks (Monetary Policy Report, April 2026). Term deposits reprice only as they mature.

Outstanding loans passed through 46 per cent of the tightening and already 70 per cent of the easing, as the externally linked share of the book kept rising, from 62.9 per cent in June 2025 to 65.4 in December. Outstanding deposits run the other way, 82 against 38 per cent so far, because deposits taken near the peak keep their rates to maturity. To June 2026 outstanding loans were down 91 basis points and outstanding deposits 51, still falling six months after the last cut, while fresh deposit rates had given back part of their fall, from 97 lower to 63, with credit growing 18.6 per cent a year against deposits' 13.3 (Governor's statement, 5 August 2026). Banks also widened their spreads over the repo rate on new linked loans; on domestic banks' housing loans, from 2.34 to 2.44 percentage points between January 2025 and February 2026 (Table II.12 of the report).

This is where transmission looks broken when it is not. Money market rates overshot the repo rate because the operative rate did, and contract rates lag it by the reset calendar and the maturity profile. It runs in reverse too: between the start of January and 4 February 2026, with the repo rate unchanged, three-month certificate of deposit rates rose 84 basis points, which the Bank put down to a thinner surplus, a bunching of redemptions and year-end effects (Governor's statement, 6 February 2026): a tightening nobody announced.

Reading a policy statement against the plumbing

A policy day brings the resolution, the Governor's statement and the Statement on Developmental and Regulatory Policies. The minutes follow at 5 PM on the fourteenth day with each member's vote and reasons, under section 45ZL of the RBI Act, and the Monetary Policy Report reviews the operating procedure every six months.

The resolution of 5 August 2026 reads cleanly this way. A unanimous hold at 5.25 per cent left the corridor at 5.00 and 5.50. The neutral stance commits to neither direction. CPI inflation is projected at 5.0 per cent for 2026-27, peaking at 5.9 in the third quarter, inside the band of 2 to 6 per cent around the 4 per cent target that the government renewed on 25 March 2026 for April 2026 to March 2031 under section 45ZA; three consecutive quarters above 6 per cent would be a formal failure, obliging the Bank to report reasons and remedies to the government. The Governor's statement supplied the plumbing: an average surplus of ₹1.0 lakh crore since June, the call rate 6 basis points over the repo rate from 6 June to 31 July, and two-way operations aimed at aligning the two. The next meeting is on 5 to 7 October 2026.

The vote carries what the rate does not. In October 2025 the hold was unanimous but two external members wanted the stance moved to accommodative, and the December meeting cut by 25 basis points. In June 2025 one member voted for 25 against the majority's 50, at the meeting that moved the stance to neutral. A dissent on the stance can be the earlier signal.

What this reading cannot tell you

The call market is thin: a weighted average built on ₹10,000 to ₹20,000 crore of trades moves with a few banks, which is why this page leans on weekly averages and buckets. Net liquidity says nothing about how reserves are spread across banks. The NDTL used to scale it is recovered from the published reserve requirement, a close proxy rather than the Bank's own figure. And the corridor governs overnight money only; a 10-year yield depends on the expected path of policy and a term premium, the subject of the guides to the yield curve as a price list, bond prices and yields and duration and convexity. The same plumbing under strain appears in the measured episodes of November 2016 and March 2020.

What the plumbing is for

The corridor makes a policy decision credible without the Bank trading every rupee at the policy rate: two standing offers fix the extremes, the auctions pull toward the middle, and the quantity of reserves decides how hard they must pull. Knowing which of those is at the margin separates a rate that has changed from a rate that is being transmitted. Reading it from the mechanism and then checking it against the Bank's own numbers is the method the curriculum applies to macro events: mechanism first, evidence second, and no forecast dressed up as either.