Since May 2020, in the aftermath of the global pandemic, the RBI has slashed the repo rates by a 290 bps to a record low of 4 per cent. But as the pandemic-related supply side issues normalised, the Russian invasion of Ukraine sent prices of key commodities soaring, leading to record high inflation globally including here, forcing RBI to keep on raising the cost of funds.
While high interest rate has kicked the money market rates up to a similar quantum as that of the repo spike, taking the average weighted average borrowing cost to 9.91 per cent as of September 2024, the monetary transmission – the changes of monetary policy on actual lending rates – has not happened in a commensurate manner yet.
The weighted average call rate was at the repo level of 6.50 per cent in the September. The weighted average call rate is the overnight cost of borrowing for banks and is the operating target of the monetary policy. This rate falls when the banking system has surplus liquidity. While in September the average bank lending rate was 9.91 per cent, from 2012 to 2024, the average bank lending rate was 10.61 per cent.
The finance minister’s statement comes amidst rising concerns about a possible growth slowdown but she said the government is fully aware of both the domestic as well as global challenges, and that there is no need to have “undue concerns”.
