'Transmission of higher policy rates effective'

Transmission of monetary policy mechanism was becoming effective, albeit with a lag, RBI said on Monday.

“The transmission of higher policy rates was visible in higher issuances of certificate of deposits, commercial papers, as also in higher yields of treasury bills and government securities, and even in deposit rates. Lending rates have also moved up, but with a lag,” said RBI.

The central bank, which has increased key policy rates by 125-175 basis points (bps) and cash reserve ratio by 100 bps between February and September, has forced most banks to raise deposit as well as lending rates.

As many as 72 banks raised deposit rates by 25-125 bps, while the benchmark prime lending rate was also increased during the September quarter. In October, banks raised their base rate, the new loan pricing mechanism, by 10-50 bps.

“Almost 53 banks, with a share of 94 per cent in total bank credit, have foxed their base rate in the range of 7.5-8.5 per cent, indicating convergence,” RBI noted.