RBI to discuss monetary policy transmission with banks
18 February 2019
The Reserve Bank of India (RBI) will ask the chiefs of public and private sector banks to discuss transmission of policy rate cut through a lowering of lending rates.
With lenders merely cutting lending rates against a 25 basis point reduction in the rates RBI charges banks, governor Shaktikanta Das will be meeting bank chiefs later this month to look into ways of effecting a full pass-through of lower interest rates to the real economy.
“Transmission of rates is very important, especially after the central bank announces a rate cut. It has already been stated in our post-MPC conference. I am having an interaction with the CEOs and MDs of banks, both public and private sector on February 21,” Das said at a press conference in New Delhi, after the customary post-Budget board meeting of the RBI, addressed by the finance minister Arun Jaitley.
“Transmission of rates is very important especially after the central bank announces a rate cut,” Das told reporters after its board meeting in the capital.
“We will discuss that issue with the banks and see what needs to be done,” said Das, adding that he is set to meet with the heads of private and public sector banks on 21 February.
Earlier in the day, Rajnish Kumar, Chairman of State Bank of India, the country’s largest public sector lender said that the bank currently does not have any headroom to cut interest rates.
RBI’s 25 basis points or a quarter of a percentage reduction in its rate in which it lends to banks, which was first after August 2017 and was aimed at prodding banks to lower lending rates. However, some of the banks have lowered their MCLR (Marginal Cost of Funds based Lending Rate, the benchmark for deciding lending rates by the banks) in the range of 5 to 10 basis points.
Banks say that money received on the basis of the repo rate is a small constituent of the overall liquidity. Also, any decision on lowering lending rates for borrowers depends on many other things such as the cost of overall funds, deposit growth, beside others.