RBI wants banks to pass on rate cuts faster

  • HT Correspondent, Hindustan Times, Mumbai
  • Updated: Dec 02, 2015 01:02 IST
Reserve Bank of India (RBI) governor Raghuram Rajan. (Reuters File Photo)

The RBI on Tuesday nudged banks to ensure quicker transmission of the rate cuts effected so far.

This would help borrowers in terms of lower EMIs, for which RBI governor Raghuram Rajan proposed a fresh look at the way banks calculate their base rate against which lending rates are benchmarked.

Rajan kept the door open for further interest rate cuts in future, especially after the Union budget in February, as certain growth parameters continue to appear weak.

“We are accommodative and still vigilant,” he said. “There are upside and downside risks. While urban consumption is showing signs of a pick-up in some areas such as vehicle sales, rural demand has been weakened by two consecutive deficient monsoons and slowing construction activity. It remains to be seen whether growing public investment can crowd in private investment despite the low capacity utilisation.”

The RBI has cut the repo rate by 125 basis points so far in 2015 but less than half of that has been passed on by banks.

The marginal cost of pricing would ensure faster transmission compared to the average cost method currently in use.

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