Why more monetary easing is on the cards

Any change in the value of the new external benchmark mandated by the RBI will find expression in bank lending rates far more quickly than has been happening until now

Arindam Gupta

Banks source about 1 per cent of their funds from the Reserve Bank of India’s (RBI) repo window and compensate the central bank by paying interest at the repo rate. This funding is normally required for seven to 14 days, when banks face a shortfall. But, a cut in lending rates should be related more to similar cuts in deposit rates than to a cut in the repo rate. The simple reason: Banks obtain almost 99 per cent of their lendable resources from public deposits. Surprisingly, State Bank of India (SBI), the country’s largest bank, decided to discontinue repo-rate lending ...