New challenge to economy: Lenders not passing on rate cuts to customers

A decision to announce a fresh stimulus could be a tough one for the government, after its budget deficit topped 90% of its full-year goal

The Reserve Bank of India is Asia’s most aggressive monetary authority in cutting interest rates. But lenders aren’t passing on the reductions to customers, in what could be the biggest challenge to reviving the $2.7 trillion economy.

The spread between the RBI’s key policy rate and the weighted average lending rate on outstanding loans from commercial banks is the highest in data going back to February 2012. That’s mainly because money supply -- including currency in circulation and bank deposits -- is too low, Neelkanth Mishra, India strategist at Credit Suisse Group AG, wrote in the Business Standard newspaper.

Authorities need to