Broad-based transmission of policy rates still some way off, say experts

RBI has moved liquidity into the surplus side from a deficit four months ago, and some experts feel it may be preparing for monetary transmission before it cuts the repo rate again next week

A broad-based transmission of the 25 basis point rate cut enacted in February will likely take some more time to be transmitted down the line, despite the banking system's liquidity moving into the surplus side after nearly four months of deficit following increased government spending and the central bank's ongoing efforts to inject liquidity through dollar-rupee buy/sell swap auctions, open market operations (OMOs), and variable rate repo auctions.

 

The delay in transmission, though, is largely because of deposit tightness in the system stemming from structural issues in the banking system, which has led banks to increasingly rely on bulk deposits