RBI Governor Urjit Patel Wednesday said there is further scope for banks to reduce lending rates as the Reserve Bank has already brought down its policy rates by 175 basis points since January 2015. “There is still scope for the lending rates to come down because our policy rates came down by 175 basis points and weighted average lending rates have come down only by 85-90 basis points. I think there is scope for more transmission,” Patel said in the post-policy press meet.
In the sixth bi-monthly monetary policy Wednesday, the RBI maintained status quo by keeping repo rate at 6.25 per cent and changed the policy stance neutral after being in accommodative mode for long, citing a slew of headwinds. This is the second time in a row when the RBI left the policy rate unchanged awaiting more clarity on inflation trend and the impact of demonetisation on growth.
Post-demonetisation, the banks sharply reduced their lending rates based on marginal cost of funds based lending rate (MCLR). In fact, the MCLR was introduced in April last year after bankers refused to heed the advice of RBI to lower rates even after it had done so by 125 bps.
The RBI started reducing repo rate since January 15, 2015, when the rate was brought down to 7.75 per cent and since then it has cumulatively reduced the rates by 175 bps. The last time it lowered the rate was in the October 2016 policy announcement, which was also Patel’s maiden policy announcement as the Governor and also the first by the six-member Monetary Policy Committee headed by Patel.