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RBI Study: Banks Pass on Rate Hikes More Than Cuts
Sentiment: NeutralHigh Priority
What Happened?
A recent RBI study reveals that banks transmit 76.4% of repo rate hikes but only 64% of cuts. This disparity highlights the challenges in passing on rate reductions to borrowers.
Key points
- Banks passed on 76.4% of repo rate hikes through contract repricing.
- Lending rates increased by 191 basis points following a 250-basis-point hike.
- During the easing phase, only 64% of rate cuts were transmitted.
- Lending rates fell by 80 basis points after a 125-basis-point cut.
- MSME loans saw the largest impact, with rates falling 122 basis points.
- Education loans fell by 162 basis points but had minimal impact on overall WALR.
Key insights
- The slower transmission of rate cuts may affect borrowing costs for consumers.
- Banks may prioritize net interest margins during easing cycles, impacting loan affordability.
- The disparity in rate transmission could influence monetary policy effectiveness.
Why it matters
Understanding how banks transmit rate changes can inform borrowers about potential loan costs.
Source
Times of India
