Linking loan rates to external benchmark boosts RBI policy transmission

In response to each policy rate cut by the central bank, the bond market passed on the cuts almost immediately

Topics
RBI | Policy repo rate | money market fund

BS Reporter  |  Mumbai 

The Reserve Bank of India (RBI) has lowered policy repo rate by 250 basis points since February 2019. The rate easing cycle started much before the pandemic set in as the growth was showing signs of weakening already. Lack of transmission of policy actions has been a long-standing issue in India’s financial market.

The central bank experimented with several models to improve the transmission, but it seems they got it right this time. In response to each policy rate cut by the central bank, the bond market passed on the cuts almost immediately. Indian banks also lowered their ...

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First Published: Fri, July 16 2021. 17:22 IST
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