Short-Term Borrowing Costs Jump After RBI's First Rate Hike in Nearly Four Years
Interest rates on very short-term government borrowing rose sharply. At the auction reported on 14 October 2026, the 182-day Treasury Bill sold at a yield of 6.29% and the 364-day Treasury Bill at 6.49%.
These yields are well above the RBI's repo rate of 5.50%. The gap (premium) was 79 basis points for six-month bills and 99 basis points for one-year bills, the widest since November 2022.
The rise came after the RBI's Monetary Policy Committee (MPC), on 7 October 2026, raised the repo rate by 25 basis points from 5.25% to 5.50%. This was the first hike since February 2023. The MPC also changed its stance from "neutral" to "calibrated tightening", which signals that more hikes are possible.
The RBI also moved to soak up extra cash from banks. It raised the minimum share of the Cash Reserve Ratio (CRR) that banks must keep every single day from 90% to 99%, from the fortnight beginning 16 October 2026, and announced a ₹25,000 crore sale of government bonds.
The RBI Governor said monetary policy cannot be seen as separate from financial stability. Market participants read this as a sign of more tightening and raised their bets on further rate hikes.
Monetary Policy Committee (MPC): How RBI Sets the Repo Rate
The Monetary Policy Committee is a six-member body that sets India's main policy interest rate, the repo rate. Three members come from the RBI, including the Governor as chair, and three are outside experts appointed by the central government. Its legal job, under the RBI Act, 1934 (as amended in 2016), is to keep CPI inflation close to 4%, within a band of 2% to 6%, while keeping growth in mind. Along with the rate, the MPC announces a "stance", which tells the market which way it is likely to move next.
The MPC's hike, and especially its new "calibrated tightening" stance, told markets that rates are more likely to go up than down. Lenders now expect higher rates over the next six to twelve months, so they demand higher yields on T-bills today. This is why the premium of T-bill yields over the repo rate has jumped.
Treasury Bills (T-Bills)
Treasury Bills, or T-bills, are very short-term loans that the Government of India takes from the market. They last for less than one year. The government does not pay interest on them in the usual way. Instead, it sells each bill at a price lower than its face value and pays back the full face value at the end. The difference is the investor's earning. Because the central government stands behind them, T-bills are considered among the safest investments in India.
The cut-off yields of 6.29% (182-day) and 6.49% (364-day) are far above the 5.50% repo rate. This large premium shows that the market expects more rate hikes and tighter cash in the banking system, after the RBI's hike, its new stance and its liquidity-absorbing steps.
Cash Reserve Ratio (CRR)
The Cash Reserve Ratio is the share of a bank's deposits that it must keep as cash with the Reserve Bank of India. The bank cannot lend this money and earns no interest on it. If the CRR is 3% and a bank holds ₹100 crore of eligible deposits, it must park ₹3 crore with the RBI. By raising or lowering the CRR, the RBI can take cash out of the banking system or put cash back in.
Banks had a large cash surplus (about ₹3.88 lakh crore on 8 October 2026), which kept overnight rates below the new 5.50% repo rate. By raising the daily CRR minimum to 99% and selling bonds, the RBI is locking up spare cash so that the call rate rises towards the repo rate. Tighter cash, plus the hawkish stance, is pushing up T-bill yields too.
- Repo rate: raised by 25 basis points to 5.50% on 7 October 2026 (first hike since February 2023)
- MPC stance: changed from neutral to "calibrated tightening" (4-2 vote)
- 182-day T-bill cut-off yield: 6.29%; 364-day: 6.49%
- Premium over repo: 79 basis points (six-month), 99 basis points (one-year); widest since November 2022
- Weighted average call rate rose to about 5.43% (from 5.31%) after the RBI's liquidity steps
- Daily CRR minimum raised from 90% to 99% from 16 October 2026; CRR rate unchanged at 3%
- OMO sale of government bonds: ₹25,000 crore (13 October 2026)
- CPI inflation: 4.8% in August 2026; RBI FY27 inflation forecast 5.2%; growth forecast 7.1%