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India's Transmission of Repo Rate Changes Has Improved Over Time
Mint Mumbai
|May 12, 2025
Monetary policy has grown more effective and RBI's rate-formula tweak for corporate lending may have made a difference
It can be said with some certainty that under normal conditions, there would be at least another 50 basis points of cuts by the Reserve Bank of India (RBI) in the repo rate this year (100 basis points form a percentage point).
The reasons are quite clear. First, RBI changed its stance in its last policy statement to 'accommodative.' It also issued a clarification of its stance nomenclature, saying that the shift could mean a further lowering of policy rates. Second, liquidity has been provided on a near real-time basis by RBI to ensure that the system is in surplus. Third, RBI lowered its inflation forecast to 4% for 2024-25, with the India Meteorological Department (IMD) providing further comfort by forecasting a normal monsoon this year. And last, RBI's projection of growth in India's gross domestic product (GDP) has been downgraded a tad, which is the clinching argument for lowering rates.
This story is from the May 12, 2025 edition of Mint Mumbai.
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