RBI keeping a close watch on rate transmission: Governor Shaktikanta Das

“The pace of transmission of monetary policy actions to lending and deposit rates has quickened in the current tightening phase, beginning May 2022,” governor Das said.

The weighted average lending rates (WALRs) on fresh and outstanding rupee loans have increased by 117 bps ( one basis point is 0.01 percent) and 63 bps, respectively, over the period May to October 2022 during which the central bank raised the benchmark policy rates by 190 basis points from 4 percent to 5.9 percent.

The tightening cycle was reflective in other rates as well which inched up. Since Sep’22, MCLR, overnight rate went up by 25 bps, term deposit greater than one year maturity rose by 98 bps, according to an analysis by Bank of Baroda. The weighted average call money rate is trading above repo at 6.13 percent in November ’22. The degree of transmission was fastest for term deposit rate greater than one year, call money rate, MCLR (one year) for public sector banks and 91-day Treasury bills, it said.
On the deposit side, the weighted average domestic term deposit rate on fresh and outstanding deposits increased by 150 bps and 46 bps, respectively, during the same period.

“ We are keeping a close watch on this process of transmission” governor Das said , likely indicating that some banks are raising faster than the rate at which policy rates rose. Data indicates that weighted average lending rates foreign banks as a group have risen by 225 bps over the period during which repo rates have risen by only 190 bps. foreign banks as a group has raised

Rates are expected to increase further even after a 50 bps hike in benchmark repo rates to 6.25 percent.

“Acuité expects a further rise in bank deposit rates over the next two quarters to the extent of 50-100 bps given the narrative from MPC and the continuing momentum in credit growth,” said Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research. “ The pass-through of higher rates to home loans may start to impact the demand for housing, particularly in the mid to high ticket segment.”