The repo rate set by the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) remains unchanged at 5.5% since June, after cumulative cuts of 100 basis points (bps) this year.

Two-speed transmission

For all the easing, however, the transmission of monetary policy is yet to reach its full potential. The effects yielded so far: more than 100 bps decline in the 91-day Treasury bill, ~90 bps in the two-year government security (G-sec), ~50 bps in the five-year G-sec and ~30 bps in the 10-year G-sec.

Transmission to the bond market, therefore, has been relatively swift, particularly in short-term instruments, aided by overnight liquidity support.

In the bank credit market though, there is some distance to cover. While deposit rates have responded faster, transmission has been s

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