RBI unhappy over Monetary policy transmission

RBI unhappy over Monetary policy transmission

A police officer stands guard in front of the Reserve Bank of India (RBI) head office in Mumbai April 17, 2012. The Reserve Bank of India cut interest rates on Tuesday for the first time in three years by an unexpectedly sharp 50 basis points to give a boost to flagging economic growth but warned that there is limited scope for further rate cuts. REUTERS/Vivek Prakash (INDIA - Tags: BUSINESS)
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Mumbai

The Reserve Bank of India today expressed in unhappiness over the manner with which monetary policy transmission had taken place despite introduction of Marginal Cost of Funds based Lending Rate (MCLR). In a statement on developmental and regulatory polices, the RBI said MCLR was introduced in April last year to improve the monetary policy transmission even though it had been an advance over the base rate system, but the experience with the Marginal Cost of Funds Based Lending Rate (MCLR) system has not been entirely satisfactory”.

It said ”given a large part of the floating rate loan portfolio of banks is still anchored on the Base Rate, the RBI will be exploring various options in the near future to make the Base Rate more responsive to changes in cost of funds of banks”.

An internal Study Group has been constituted by the Reserve Bank of India (RBI) to study the various aspects of the MCLR system from the perspective of improving the monetary transmission and exploring linking of the bank lending rates directly to market determined benchmarks. The Group will submit the report by September 24, 2017. Further, a quick scrutiny of the Base Rate of some banks post the introduction of MCLR suggests that it has moved significantly less than MCLR. While the extent of change in Base Rate may not necessarily mirror the revision in MCLR, the rigidity of Base Rate is a matter of concern for an efficient transmission of monetary policy to the real economy.

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