when a bank is required to hold more money in reserve it reduces the amount of money the banks have for lending the people. since the supply of money in the bank is lower the bank charge more when lending to its people thus resulting in interest rates rising up.
A bank is required to hold more money in reserve because bank has low amounts to create loans for the people or for its consumers. The central bank (like reserve bank in India) of each country sets a certain amount of money or percentage usually that the commercial are required to holds in reserve every time, this amount usually depends on the amount of deposits that the bank have.
The excess amount or limit as directed by central banks means commercial banks have less money to borrow the investors and this will lead to an increase in the interest rate and vice a versa.
