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India Central Bank Faces Trouble Getting Banks to Cut Rates

  • Bankers cite higher cost of funds for poor transmission
  • Calls are increasing for RBI to opt for deeper rate cuts
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Photographer: Dhiraj Singh/Bloomberg

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Indian lenders haven’t fully passed on the central bank’s latest interest rate cut to borrowers, pressuring the monetary authority to loosen policy even more to support economic growth.

A mismatch between deposits and credit growth, and competition from the government for small-savings mean banks face a high cost of capital, limiting their ability to transmit monetary policy easing. Bankers say the Reserve Bank of India’s 25 basis-point reduction in the repurchase rate to 6.25 percent in February was a start, but was probably too little to have any impact on lending rates just yet.