Reverse Repo Rate

How it works

The reverse repo is the flip side of the repo. Under the repo rate, the RBI lends short-term money to banks; under the reverse repo, banks lend their spare cash to the RBI and earn interest in return. By setting this rate, the RBI influences how attractive it is for banks to simply park money safely rather than lend it out into the economy — a key tool for absorbing excess liquidity.

A higher reverse repo rate encourages banks to deposit surplus funds with the RBI; a lower one nudges them to lend more into the real economy instead.

In India

The reverse repo rate was long the floor of the RBI's interest-rate corridor. But since April 2022, the RBI introduced the Standing Deposit Facility (SDF), which now serves as the effective floor for absorbing surplus liquidity. The SDF, unlike the old reverse repo, does not require the RBI to provide collateral to the banks in return. As of 2026, with the repo at around 5.25%, the SDF rate sits just below it.

The reverse repo rate still technically exists on paper, but it is no longer the active, operative rate that governs day-to-day liquidity operations.

Why it matters

The reverse repo (and now the SDF) sets the floor on overnight money-market rates, which feeds directly into liquid-fund returns and the yields on short-term debt. The width of the corridor between the repo rate and the SDF shapes how tightly the RBI is able to control short-term interest rates across the system.

Common mistakes

Don't quote the reverse repo as the current operative rate — the SDF has effectively taken over that role since 2022, and this trips up many. And don't confuse the reverse repo (the RBI absorbing liquidity from banks) with the repo (the RBI injecting liquidity into banks); the two pull in exactly opposite directions on the system's available cash.