RBI monetary policy review: Signalling only via rate cuts is not enough

Past evidence has proven that transmission works best when there is positive banking system liquidity during rate cuts and tight liquidity during rate hikes

Despite the 75 bp in cumulative repo rate cuts so far, growth momentum continues to flag. Are rate cuts not enough or are they not working? Both issues need consideration. 

Monetary policy works with long transmission lags. In India it typically takes two to three quarters for rate cuts to affect growth and transmission is most effective via the interest rate channel (financial market rates) and then the credit channel (via bank lending/ deposit rates). 

The former is working well, but the latter (credit channel) faces challenges. The fragile non-bank finance companies (NBFC) mean banks need to step up, but despite policy