InvestorQ : What is meant by transmission of rate cuts and why did the RBI dwell so much on transmission in its policy statement?
Archita Jajjoo made post

What is meant by transmission of rate cuts and why did the RBI dwell so much on transmission in its policy statement?

Answer
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Rashi Mehra answered.
7 months ago


Transmission is the passing on of RBI rate cuts to the end borrower. One of the arguments in favour of status quo on rates was that the transmission to the end borrower had to still fully play out. For example, in the case of the weighted average loan rates (WALR), the average transmission was still less than 50%. However, shift to external benchmarking of floating rate loans only began in October and since then the progress on transmission has been quite rapid. The RBI also thought that it would be opportune to let these trends play out fully and the transmission get to above 75% before further rate cuts. One of the measures in the policy to ensure adequate liquidity was essentially aimed to ensure seamless transmission. That has to be the focus area now.