Mumbai, Oct 4 (udaipur kiran) The transmission of past monetary policy easing have remained staggered and incomplete, the Reserve Bank of India said on Friday.
According to the apex bank, the cumulative policy and repo rate reduction of 110 basis points in the last four reviews have led to a marginal decline of only 29 basis points in fresh rupee loans of commercial banks.
Significantly, RBI’s intention behind lower repo rate is defeated as commercial banks do not fully transmit the benefits of the reduced short term lending, which is required to lower interest cost on automobile and home loans, thereby boosting sales.
“As against the cumulative policy, repo rate reduction of 110 bps during February-August 2019, the weighted average lending rate (WALR) on fresh rupee loans of commercial banks declined by 29 bps,” said the fourth policy review statement of the current fiscal issued on Friday.
Nevertheless, the RBI’s MPC in the fourth policy review on Friday maintained the accommodative stance by reducing repo lending rate by 25 basis points to 5.15 p er cent from 5.40 per cent.
This was the fifth consecutive reduction in the key lending rate, which is also the lowest in around a decade.
The apex bank’s move is seen in the context of ever falling economic growth. The continued slowdown has led the RBI to lower India’s economic growth projection to 6.1 per cent from 6.9 per cent for FY20.
“High frequency indicators suggest that the services sector activity weakened in July-August. Indicators of rural demand, viz., tractor and motorcycles sales, contracted,” the policy statement said.
“Of underlying indicators of urban demand, passenger vehicle sales contracted in July-August… The sales of commercial vehicles, a key indicator for the transportation sector, contracted by double digits in July-August,” it said.