Repo rate: Repo rate hold also aimed at improving transmission: Experts

Mumbai: Even as inflation is now well within the central bank’s comfort zone, the monetary policy committee (MPC) decided to hold the policy repo rate at 6.5% as transmission of the cumulative policy rate hike is still underway. The RBI cumulatively has raised the repurchase rates by 250 basis points since the summer of 2022. The transmission ranged between 107 basis points and 228 basis points over this period.

The weighted average lending rate (WALR) on fresh rupee loans rose 146 basis points in the current rate hike cycle. The WALR on outstanding rupee loans rose 107 bps. The weighted average domestic term deposit rate (WADTDR) on fresh rupee term deposits increased 228 bps in the current cycle, while the weighted average domestic term deposit rate (WADTDR) on outstanding rupee term deposits rose 184 bps.

“While monitoring external risks, further policy transmission will also be encouraged,” said Radhika Rao, senior economist DBS Bank. Compared with the complete pass-through under the EBLR (external benchmark lending rate) regime, the MCLRs have risen by 135-160bp (across tenors) between early 2022 and January 2024.

‘Repo Rate Hold also Aimed at Improving Transmission’Agencies

“We expect that while liquidity deficits could improve over the coming weeks with a likely rise in government spending, the rise in currency in circulation ahead of the general elections and seasonal factors (tax outflows etc.) could broadly keep liquidity conditions tight over the coming months,” HDFC Bank said in a report. “This would also align with RBI’s intention of improving transmission. We, therefore, continue to expect the WACR (weighted average call money rate) averaging above or close to the repo rate going forward. We see the variable rate repo and reverse repo auctions being the preferred tools for liquidity management.”

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