Chapters in Macro & Economy
Chapter 2 of 7 · 6 min read
RBI, repo rate and system liquidity
How the central bank steers rates, and why liquidity matters as much as the headline rate.
The Reserve Bank of India's Monetary Policy Committee sets the repo rate, the rate at which banks borrow from the RBI. Cuts make credit cheaper and generally support equities and rate-sensitive sectors; hikes tighten conditions.
Stance and tools
- Stance: accommodative, neutral or withdrawal of accommodation.
- CRR and SLR: reserves banks must hold.
- Open market operations and variable rate repo/reverse repo: manage liquidity day to day.
Liquidity
Surplus liquidity pushes short rates toward the lower band; deficit pushes them up. Transmission of a repo cut depends on liquidity being comfortable.
Key takeaways
- Repo rate sets the cost of money; liquidity decides how it transmits.
- Stance guidance often matters more than the move itself.
- Watch bond yields for the market's verdict on policy.
Put it into practice
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Keep learning
- Bond yields and the yield curve · Macro & Economy
Education only, not investment advice. Updated 2026-10-09.