RBI Tightens Liquidity, Raises Daily CRR to 99% After Repo Rate Hike

The Reserve Bank of India (RBI) has tightened liquidity management by raising the minimum daily maintenance requirement for the Cash Reserve Ratio (CRR) from 90 per cent to 99 per cent, effective from the fortnight beginning October 16, 2026. This move follows the central bank’s decision to increase the policy repo rate by 25 basis points to 5.50 per cent earlier this week, the first such hike in two and a half years. Additionally, the RBI announced an open market operation (OMO) sale of government securities worth ₹25,000 crore on October 13 to absorb surplus liquidity from the banking system and align overnight rates with the repo rate, as reported by Business Standard.

The CRR mandates banks to maintain a proportion of their deposits as cash balances with the RBI, on which no interest is earned. Under the new rule, banks must maintain at least 99 per cent of their prescribed CRR daily, while ensuring their average daily CRR over the fortnight is no less than the 3 per cent requirement. This change is expected to reduce banks’ flexibility in managing daily liquidity and could tighten money market conditions. The last time the daily CRR was raised to 99 per cent was in July 2013 amidst foreign exchange market volatility.

The measures primarily aim to bring the Weighted Average Call Rate (WACR), the operating target of monetary policy, closer to the 5.50 per cent policy repo rate. On Friday, the WACR stood at 5.31 per cent, close to the lower end of the interest rate corridor, which is bounded by the Standing Deposit Facility (SDF) rate of 5.25 per cent and the Marginal Standing Facility (MSF) rate of 5.75 per cent. Since the August monetary policy review, the WACR had traded, on average, 14 basis points below the policy repo rate, prompting Governor Sanjay Malhotra to state on Wednesday that the RBI would use various tools to align the WACR.

The banking system's liquidity surplus stood at ₹3.88 trillion as on October 8. The ₹25,000 crore OMO auction on October 13 will involve six government securities maturing between 2030 and 2034, conducted via the multiple-price method. This follows previous OMOs in September, where the RBI sold ₹1 trillion in government securities to absorb rupee liquidity. While bankers anticipate reduced flexibility and less funds for other uses, they also note that most banks already maintain CRR balances above 95 per cent, potentially limiting the overall impact.

In related liquidity operations, banks parked ₹18,170 crore in the RBI’s 10-day variable rate reverse repo (VRRR) auction, with weak demand for longer tenures due to a lack of additional returns. Conversely, a three-day VRRR auction saw stronger participation, with nearly ₹1.4 trillion parked against a notified amount of ₹1.5 trillion. The RBI plans another three-day VRRR auction worth ₹2 trillion on Monday.

What to watch: The impact of these liquidity tightening measures on market rates and banking sector operations.

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