Passing on of rate actions slow due to barriers: RBI

‘Lending Rates Not Linked To Repo Causing Delay In Impact’

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Mumbai: Reserve Bank of India (RBI) deputy governor Michael Patra has said that, while repo-linked loans have improved monetary policy transmission, there continue to be impediments to the central bank’s actions getting passed on to markets. Repo is the rate at which the RBI lends to banks and it is linked to all retail loan rates. According to Patra, other benchmarks like marginal cost of lending rate (MCLR), which have annual resets, delay transmission. Also, nonbanking finance companies do not follow any uniform method in pricing their loans.

Speaking to treasury heads at a seminar organised by the RBI at Lonavala last weekend, Patra said that in extraordinary times like the present it pays for market participants and the central bank to share a common set of expectations as “macroeconomic and financial stability involves shared benefits and, for both, high stakes”.