MediumIV Macro Policy & Sovereign Debt9 October 2026, Friday
RBI lifts daily cash reserve floor to 99% to drain surplus liquidity
The Reserve Bank of India on 9 October raised the minimum daily cash reserve that banks must maintain from 90% to 99% of the required amount. The change applies from the fortnight beginning 16 October and is backed by a bond sale of 25,000 crore rupees on 13 October.
RBI circular RBI/2026-27/290 of 9 October raised the daily minimum maintenance requirement from 90% to 99% following a review of liquidity conditions. The cash reserve ratio (CRR), the share of deposits banks must hold interest-free at the central bank, stays at 3%. The requirement to meet 3% on a fortnightly average also remains. In practice, banks will no longer be able to manage the obligation flexibly from day to day.
According to CAalley, citing Business Standard, surplus funds parked by banks at the liquidity window reached 3.88 trillion rupees. The weighted average call rate (WACR) stood at 5.31% on Friday and has averaged 14 basis points below the repo rate since the August meeting. The RBI raised the repo rate to 5.50% on 7 October. It sold a total of 1 trillion rupees of bonds through open market operations in September and will sell another 25,000 crore rupees across 6 government bonds maturing in 2030–2034 on 13 October.
The same report says a daily floor this tight was last applied in July 2013; it was lowered to 95% in September 2013 and to 90% in April 2016. In a three-day reverse repo auction, about 1.4 trillion rupees was parked against a notified amount of 1.5 trillion. A state-run bank executive said the move would reduce funds banks could deploy elsewhere. A private bank executive said banks might be reluctant to lend at longer maturities without a term premium.
Talay assessment
Bottom line
The RBI does not see the rate hike as enough on its own: with the overnight rate below repo, the increase was not passing through to the market. Raising the daily floor to 99% and selling bonds is an attempt to make the policy rate genuinely binding. The likeliest path is the overnight rate converging on 5.50% and near-term bank funding costs rising, which supports the rupee but slows credit growth.
Likely effects
- Money marketUncertainWeeks
Removing daily flexibility forces banks to hold surplus cash through the day, pushing the overnight rate from 5.31% towards the 5.50% repo rate.
- RupeePositiveWeeks
Tighter rupee liquidity makes speculative pressure on the currency more expensive and may help the RBI spend fewer reserves.
- Credit and growthNegative1–6 months
Banks demanding a term premium means higher rates on corporate loans and slower supply of extended-maturity credit.
Possibilities, ranked
- 1Rate corridor tightens60%
The overnight rate converges on repo and the RBI keeps draining the surplus with further bond sales.
Watch: WACR settling in a 5.45–5.50% band after 16 October
- 2Surplus persists25%
The banking system surplus proves sticky, the overnight rate stays below repo and the RBI tries new tools.
Watch: The surplus at the liquidity window staying above 3 trillion rupees
- 3Overtightening15%
FX sales to defend the currency quickly turn liquidity into a deficit and the RBI eases the daily floor again.
Watch: The RBI starting to inject liquidity through repo auctions
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Daily CRR floor▲ 90% → 99%
- Liquidity surplus▲ ₹3.88 trillion