RBI Malhotra says monetary policy transmission happening faster than earlier
This story was originally published at 14:36 IST on 25 July 2025
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--RBI Malhotra: Monetary policy transmission happening, to support growth
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--RBI Malhotra: CRR not only for liquidity management
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NEW DELHI – The transmission of the 100-basis-point interest rate cuts this year is happening at a quicker pace than earlier, Reserve Bank of India Governor Sanjay Malhotra said Friday. This faster monetary policy transmission will help support growth, the governor said at a banking summit organised by the Financial Express newspaper in Mumbai.
The RBI's Monetary Policy Committee has lowered the repo rate by 100 bps so far in 2025, including a larger-than-expected reduction of 50 bps in June. Malhotra said new loan rates are down 50 bps as of June, meaning rate cuts which took place in February and April have already been transmitted.
"Preliminary data for June shows new loan rates are lower by 50 bps. Within two months of our 50 bps cut, whole of monetary policy transmission has happened," the governor said. "Whatever we did, today stands validated in terms of much faster monetary policy transmission." Malhotra said there are no signs to suggest that monetary policy actions will result in asset bubbles and will instead help in credit off-take.
On the RBI's decision to lower the cash reserve ratio by 100 bps to 3% of the banks' net demand and time liabilities, Malhotra said the move is seen as an abnormal measure because the tool has been used sparingly in the past. "CRR is not only for liquidity management, it is also for reducing costs so that the benefits thereof are passed on to savers and borrowers," he said.
The reduction in cash reserve ratio will be carried out in four equal tranches with effect from the fortnights beginning Sept. 6, Oct. 4, Nov. 1 and Nov. 29. The move is expected to infuse INR 2.5 trillion of liquidity into the banking system.
Malhotra said the cash reserve ration has never been used to the extent of 4%, and was only used till 1%, "that too during times of COVID-19". "The 3% (CRR) gives sufficient cushion, ammunition, liquidity to provide it in times of need of crisis because it is sparingly used tool," Malhotra said. The RBI also has enough resources and tools to chart out the right monetary policy to manage the trade-off between growth and inflation, he added. End
Reported by Shubham Rana
Edited by Tanima Banerjee
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