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Macro economics

RBI's toolkit

Repo, SDF, MSF, CRR and SLR: what each one does and where each stands

Policy rates as on 7 October 2026; reserve ratios as published by RBI on 9 October 2026

Verified 12 October 2026

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For training and education only. Not investment advice.

Trainer notes

Ask the room to name as many RBI rates as they can and what each does. Most people know 'repo' and little else. By the end they should be able to place every rate on one picture.

RBI does not set your home loan rate. It sets the price of overnight money between banks.

Many other interest rates, from a one-year deposit to a ten-year government bond, take their cue from that overnight price.

Trainer notes

The tools in this deck all do one of two things: set the price of overnight money, or change how much money banks have to lend.

The job, the committee and the lever

  • 4%

    The job

    Keep consumer price inflation at 4%, within a band of 2% to 6%. The Government has set this target for 1 April 2026 to 31 March 2031.

  • 6

    The committee

    The Monetary Policy Committee has six members and decides the repo rate by vote. It has six scheduled meetings in 2026-27.

  • 5.50%

    The lever

    The policy repo rate. The committee raised it from 5.25% on 7 October 2026 and changed its stance to 'calibrated tightening'.

Sources: RBI Monetary Policy Statement, 7 Oct 2026; RBI press release on the MPC meeting schedule for 2026-27, 23 Mar 2026; Government notification of the inflation target, March 2026.

Trainer notes

The remaining meetings this financial year are 2 to 4 December 2026 and 3 to 5 February 2027.

The corridor: floor, ceiling and repo

Per cent (the axis starts at 5.0)
Bar chart: Per cent (the axis starts at 5.0). The figures are in the table that follows.5.005.255.505.756.00SDF (floor)RepoMSF (ceiling)5.255.505.75
Per cent (the axis starts at 5.0)
Rate (%)
SDF (floor)5.25
Repo5.50
MSF (ceiling)5.75

Read the chart

  • The SDF rate is what RBI pays a bank that parks spare cash with it overnight. That is the floor RBI offers.
  • The MSF rate is what a bank pays to borrow overnight from RBI, up to a limit. That is the ceiling.
  • Overnight rates mostly trade inside this band. Lenders that cannot use the SDF, such as non-banks, can lend below the floor.

Source: RBI Monetary Policy Statement, 7 Oct 2026.

Trainer notes

The weighted average call rate is RBI's operating target; RBI confirmed this when it revised its liquidity framework on 30 September 2025. Lenders that cannot use the SDF, such as non-banks, can lend below the floor.

The rates, one by one

The rates, one by one
RateWhat it isNow
Repo rateThe rate at which RBI lends to banks overnight against government securities. This is the policy rate.5.50%
Standing Deposit Facility (SDF)The rate RBI pays banks that park spare cash with it overnight, without RBI giving any security. The floor of the corridor since April 2022.5.25%
Marginal Standing Facility (MSF)The rate at which banks can borrow overnight from RBI against government securities, up to a limit. The ceiling of the corridor.5.75%
Bank RateA reference rate, now used mainly to set the penalty when a bank falls short on CRR or SLR. Kept equal to the MSF rate.5.75%
Fixed reverse repoThe old floor. RBI still publishes it, but the SDF replaced it as the floor on 8 April 2022.3.35%

Sources: RBI Monetary Policy Statement, 7 Oct 2026; RBI Current Rates as published on 9 Oct 2026; RBI press release of 8 Apr 2022 introducing the SDF.

Trainer notes

If someone has learnt 'repo and reverse repo' from older material, this is the slide that updates them: the working floor is the SDF.

Two ratios that lock up part of every deposit

  • 3.00%

    Cash Reserve Ratio (CRR)

    The share of its deposits a bank must keep as cash with RBI. A lower CRR leaves banks more money to lend. It was cut from 4% to 3% in four steps between September and November 2025.

  • 18.00%

    Statutory Liquidity Ratio (SLR)

    The share of its deposits a bank must hold in government securities and other approved liquid assets, which include cash and gold. It keeps banks liquid and gives the government a steady buyer for its bonds.

Take-away: Out of every ₹100 of deposits (broadly), ₹3 sits with RBI as cash and ₹18 is held in approved liquid assets.

Sources: RBI Current Rates as published on 9 Oct 2026 (CRR 3.00%, SLR 18.00%); RBI circular of 6 Jun 2025 on the phased CRR reduction.

Trainer notes

Strictly, both ratios are a percentage of 'net demand and time liabilities', which for our purposes means deposits. Do not get drawn into the definition.

Adding and draining cash: the liquidity tools

The corridor sets the price. These tools change the quantity of cash in the banking system.

  1. Open market operations

    RBI buys government bonds to add cash or sells them to drain it. It sold ₹1.0 lakh crore of bonds between the August and October 2026 meetings.

  2. Variable rate auctions

    Short auctions that lend cash to banks (VRR) or absorb it (VRRR). The 7-day auction is the main one. RBI held 55 VRRR auctions in that period.

  3. Dollar-rupee swaps

    RBI buys dollars from banks and sells them back later, adding rupees for that period. It announced a USD 5 billion, 3-year swap in May 2026.

  4. CRR changes

    The bluntest tool. A cut releases cash to every bank at once; a rise locks it up.

Sources: RBI Governor's Statement, 7 Oct 2026; RBI liquidity management framework, 30 Sep 2025; RBI press release of 20 May 2026 (USD/INR swap).

Trainer notes

Between the August and October 2026 meetings banks had an average daily cash surplus of ₹5.9 lakh crore according to the Governor's statement, and RBI was absorbing that cash through bond sales and VRRR auctions. The swap in May 2026 was an earlier operation that added rupees.

Where things stand

As on 7 October 2026. These change at every policy meeting; check the date before you quote them.

REPO RATE
5.50%Raised 0.25 percentage point on 7 Oct 2026. All members voted for the increase.
STANCE
Calibrated tighteningRBI's term. Changed from 'neutral' by four votes to two.
CPI INFLATION
4.82%August 2026, provisional. Target 4%, band 2% to 6%. RBI's own projection for 2026-27 is 5.2%.
NEXT MEETING
2-4 Dec2 to 4 December 2026, then 3 to 5 February 2027.

Sources: RBI Monetary Policy Statement, 7 Oct 2026; MoSPI CPI press release for August 2026 (base 2024=100).

Trainer notes

State the facts and stop. We do not predict the next rate decision, and we do not suggest what a client should do because of it.

How a repo change reaches a household

  1. Overnight rates move first

    The call rate and other overnight rates shift almost at once, because the whole corridor moves with the repo rate.

  2. Banks' cost of funds changes

    Borrowing from RBI and from each other costs more or less, and deposit rates are reset over the following months.

  3. Loan rates follow

    Floating-rate loans follow, each on its own basis and reset date. Loans linked to an external benchmark such as the repo rate reset at least every three months.

  4. Bond yields adjust

    Yields on short-term paper move closely with the repo rate. Longer bonds also weigh inflation and government borrowing.

  5. Spending and prices last

    Borrowing and spending decisions change slowly, so the effect on inflation takes several quarters.

Trainer notes

The link to debt funds: when yields rise, prices of bonds already held fall. See the deck 'Bond prices and yields'.

If you learnt this from older material

What older decks say

  • The RBI Governor decides the rate.
  • There is no inflation target in law.
  • The corridor runs from reverse repo to MSF.
  • A 14-day auction is the main liquidity operation.

What holds now

  • A six-member committee votes, since 2016.
  • The Government notifies a 4% target with a 2% to 6% band under the RBI Act, since 2016.
  • The floor is the SDF, since 8 April 2022.
  • The 7-day auction is the main operation, since 30 September 2025.

Take-away: The rates change at every meeting. The framework changes rarely, but it has changed.

Sources: RBI Act, sections 45ZA and 45ZB; RBI press releases of 8 Apr 2022 (SDF) and 30 Sep 2025 (liquidity framework).

Trainer notes

Older training material was written before the committee and the target (2016), before the SDF (April 2022) and before the 7-day operation (September 2025).

Four things people get wrong

  • Misconception'Repo changed, so my EMI changes tomorrow.'

    What is trueFloating-rate loans follow, each on its own reset date; those linked to an external benchmark reset at least every three months. Fixed-rate loans stay as they are.

  • Misconception'CRR and SLR are the same thing.'

    What is trueCRR is cash kept with RBI. SLR is held by the bank itself in approved securities.

  • Misconception'Reverse repo is the floor.'

    What is trueIt was. Since 8 April 2022 the floor is the SDF rate.

  • Misconception'A rate rise hurts every debt fund equally.'

    What is trueThe fall in price is larger for longer-maturity bonds. Funds holding short-maturity paper reinvest sooner at the new rates.

Check yourself

  1. Question 1: Name the floor and the ceiling of the corridor, and say where the repo rate sits.

  2. Question 2: A bank has ₹1,000 crore of deposits. Roughly how much must it keep as cash with RBI and how much in approved securities?

  3. Question 3: RBI wants to take surplus cash out of the banking system. Name two tools it can use.

Sources and disclaimer

Sources for the figures in this explainer

  • Repo 5.50%, SDF 5.25%, MSF and Bank Rate 5.75%, stance and vote: RBI Monetary Policy Statement, Press Release 2026-2027/1264, 7 Oct 2026.
  • CRR 3.00%, SLR 18.00%, fixed reverse repo 3.35%: RBI Current Rates, rbi.org.in, as published on 9 Oct 2026. Phased CRR cut: RBI circular dated 6 Jun 2025.
  • Liquidity operations and surplus: RBI Governor's Statement, 7 Oct 2026. USD/INR swap: RBI Press Release 2026-2027/297, 20 May 2026.
  • SDF introduced 8 Apr 2022: RBI Press Release 2022-2023/41. Liquidity framework: RBI Press Release 2025-2026/1201, 30 Sep 2025.
  • MPC schedule 2026-27: RBI Press Release 2025-2026/2306, 23 Mar 2026. CPI August 2026: MoSPI press release, 14 Sep 2026.
  • Monetary Policy Committee and inflation target: Reserve Bank of India Act, sections 45ZA and 45ZB; Government notification of March 2026.

This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).

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