The Reserve Bank of India (RBI) has maintained an accommodative policy stance for well over a year now but its efforts have had a limited impact on spurring bank lending to consumers. Now, economists hope the measures announced on Tuesday will prove different.
Despite slashing interest rates by a total 125 of basis points in 2015, the RBI has been hamstrung by the limited pass-through by banks. Commercial lenders have implemented only about half of the rate cuts, blaming tight liquidity conditions and deteriorating asset quality. Non-performing loans (NPLs), or bad loans, spiked by nearly a third to $60.3 billion late last year, according to Reuters.
On Tuesday, the central bank lowered the rate at which it lends money to banks—called the repo rate—to a more than five-year low and announced new steps to prod banks to pass on the full benefits of monetary stimulus to the wider economy, revealing its commitment to the issue.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.