Reverse repo rate: meaning and the role of SDF

The reverse repo rate is the interest rate the Reserve Bank of India (RBI) pays banks when it takes their surplus cash against government securities. RBI lists the fixed reverse repo rate at 3.35%, checked on 16 October 2026. The Standing Deposit Facility, or SDF, is now the floor of the policy corridor: the lower reference rate for overnight borrowing and lending. Fixed reverse repo remains part of RBI’s toolkit, with use at its discretion.

Reverse repo, repo and SDF: who gives whom the cash?

A repo transaction includes an agreement to reverse the securities sale later. From the cash lender’s viewpoint, the same arrangement is a reverse repo. That perspective helps explain the name. The repo rate concerns RBI lending; reverse repo concerns absorption of bank money.

Repo versus reverse repo: side by side

The two are the same type of deal seen from opposite sides. One side sells securities and agrees to buy them back, which is a repo for that side. The other side buys them and agrees to sell them back, which is a reverse repo. In RBI usage, repo means RBI is lending and reverse repo means RBI is taking in cash. You can read more about the lending side on the repo rate page.

Current reverse repo rate and RBI corridor

SDF means Standing Deposit Facility. MSF means Marginal Standing Facility, an overnight borrowing facility. RBI introduced SDF on 8 April 2022 and replaced fixed reverse repo with it as the corridor floor. Calling fixed reverse repo abolished or permanently inactive goes further than RBI’s stated position.

In this snapshot, the gap between the ceiling and floor is 5.75% − 5.25% = 0.50 percentage points. That describes the displayed corridor; it does not promise that every overnight market transaction occurs inside it.

Why the reverse repo rate is lower than the repo rate

RBI wants overnight market rates to stay inside a band, called the policy corridor. The repo rate sits in the middle. The ceiling is the Marginal Standing Facility (MSF) rate, where banks borrow at a higher price, and the floor is the Standing Deposit Facility (SDF) rate, where banks park cash and earn less. A bank has little reason to lend to another bank below what RBI pays it, and none to pay above what RBI charges it.

In RBI's Current Rates panel, checked 27 October 2026, the repo rate is 5.50%, the SDF is 5.25% and the MSF is 5.75%. The floor is 5.50 − 5.25 = 0.25 percentage points below repo, and the ceiling is 5.75 − 5.50 = 0.25 percentage points above it. The fixed reverse repo rate of 3.35% is 5.50 − 3.35 = 2.15 percentage points below repo. Because the SDF pays more than the fixed reverse repo rate, banks have a better place to park cash, so the fixed reverse repo no longer sets the floor.

A lower rate for reverse repo than for repo also reflects what each is for. Paying less for parked cash than the price of borrowed cash keeps banks lending to each other and the economy rather than leaving money idle at the central bank.

From reverse repo to SDF: what changed

RBI introduced the SDF on 8 April 2022 and made it the floor of the corridor. The older fixed reverse repo rate stayed in the toolkit, but RBI uses it at its discretion. The SDF needs no collateral, so banks do not have to hand over government securities to park cash, and RBI does not need to keep a stock of them to lend out. That is why the SDF suits the role of a floor.

• Fixed reverse repo: a fixed rate for cash placed against government securities. Retained, used at RBI's discretion.
• Variable rate reverse repo: an auction in which banks bid for the rate they accept. The result is set by the auction. It is not a change in the fixed rate.
• SDF: a deposit without collateral and the floor of the corridor.

So when a headline mentions a reverse repo auction, read the facility name before concluding that a policy rate has moved. The question 'is reverse repo still used?' has a clear answer. RBI keeps it, but the SDF has taken over the floor role.

A made-up interest example

Suppose a bank places ₹1,000,000 at an assumed annual simple interest rate of 5%, for one tenth of a year. Interest would be ₹1,000,000 × 5 ÷ 100 ÷ 10 = ₹5,000. This invented example explains the relationship between an annual rate, principal and time. It does not quote an available RBI rate or reproduce the day-count terms of an actual operation.

A rate quoted per year differs from the amount earned overnight. Actual interest requires the operation’s amount, duration and day-count convention. Retail savings accounts and fixed deposits have their own terms; the reverse repo rate is not a deposit offer for individuals.

Reading a policy headline without turning it into a trade signal

Keep the facility name beside the number when reading an announcement. A reference to a variable-rate reverse repo auction describes an auction operation; it need not mean RBI changed the fixed reverse repo rate. Compare the same facility across dates before describing a change.

Bank funding conditions also involve liquidity and the cash reserve ratio. A glossary definition alone cannot establish what a bank share, bond or currency will do next. In a policy-day trade record, separate the published decision, your expectation and the price and quantity actually traded.

What happens when rates on cash parked with RBI rise or fall

Banks hold cash they cannot lend out at a profit on a given day. If RBI pays more for parked cash, the return on idle cash rises. Here is the usual chain, in plain steps. It describes the mechanism, not a guaranteed outcome.

1. RBI raises the rate it pays on cash banks deposit.
2. Parking cash becomes more attractive relative to lending it at the same rate.
3. Banks may ask for higher rates on new loans, or lend less, so borrowing costs can rise.
4. Higher borrowing costs can reduce spending and demand over time, which can slow price rises.

A fall works the other way around. Lower returns on parked cash push banks toward lending, and borrowing can become cheaper. In practice, many other things matter, including how much cash is in the system, how banks set their own lending rates, and the time it takes for changes to reach borrowers. The effect is gradual and uneven. See the liquidity and cash reserve ratio entries for the other levers.

Who sets the rate: the MPC calendar

The policy repo rate is decided by the Monetary Policy Committee (MPC), a panel of RBI and external members. RBI publishes the meeting calendar in advance under Section 45ZI of the RBI Act. The calendar RBI released on 23 March 2026 lists the October 2026 meeting for 5 to 7 October and the next one for 2 to 4 December 2026. Confirm any date on RBI's own site, because calendars can change. The MPC glossary entry and the RBI monetary policy page give the background.

How rate decisions show up in Nifty and bank stocks

A rate decision can reach share prices through several routes, none of them certain. Bank shares can react because rates affect the gap between what a bank earns on loans and pays on deposits. Bond yields can move, which changes the appeal of shares compared with bonds. Rate-sensitive sectors, such as housing and autos, can react to borrowing costs. The rupee can move too. The decision itself is often expected in advance, so a surprise matters more than the number alone.

The glossary cannot say what a bank share, the index or the currency will do next, and OneTradeJournal gives no signals. If you trade around policy days, write down the published decision, what you expected, and the price and quantity you traded. After a few policy days, your records will show whether your expectations helped or hurt. The Bank Nifty guide explains the index most traders watch for this.

Sources

• RBI: Current policy rates (checked 16 October 2026).
• PIB: Monetary policy framework definitions (checked 16 October 2026).
• RBI: Introduction of Standing Deposit Facility (checked 16 October 2026).
• Indian Economic Service: Repo and reverse repo (checked 16 October 2026).