The likelihood of a cut in the repo rate by the Reserve Bank of India has strengthened with each new data release since the last Monetary Policy Committee meeting and yet the probability of this easing effectively reaching the real economy remains uncertain. The challenge lies not in the direction of the policy, but in the structural transmission bottlenecks that have become increasingly evident—foremost among them, the persistently elevated credit-deposit ratio in the banking system.The consequence would be a blunted monetary transmission mechanism. Policy rates may fall, but if banks’ cost of funds remains elevated due to tight liquidity conditions, lending rates remain inelastic. This is precisely what the latest lending rate data confirms: the 1-year median MCLR rose to 9.05% in February 2025, up from 9.00% in January. With nearly 37% of total loans still linked to MCLR, this stickiness in lending rates cannot be ignored.
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