Incomplete transmission could delay rate reversal by RBI
inflation, incomplete transmission of the 250 basis point policy rate hikes since May 2022 could delay reversal of the rate cycle by the Reserve Bank of India (RBI).
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Transmission through loan and deposit rates ranged between 111 and 245 bps until May 2024, an analysis of the latest RBI data indicates. The only exception are the loans linked to external benchmarks, where full transmission is immediate. One basis point is 0.01 percentage point.
The one-year median marginal cost of funds-based lending rate (MCLR) increased by 175 bps between May 2022 and May 2024. In the same period, the weighted average lending rate (WALR) on fresh rupee and outstanding rupee loans increased by 188 bps and 111 bps, respectively.
To be sure, the RBI has kept its benchmark policy repo rate unchanged at 6.5% for eight bi-monthly policies in a row amid worries over prices, especially concerns over food inflation.
The weighted average domestic term deposit rate (WADTDR) on fresh deposits and outstanding deposits increased by 244 bps and 190 bps, respectively, during the same period. The pass-through to WALR on fresh rupee loans and WADTDR on fresh deposits was higher for public sector banks than private banks, while transmission to WALR on outstanding loans was higher for private banks.
«In response to the cumulative 250 bps hike in the policy repo rate since May 2022, banks have revised
