Showing an anti-consumer bias in the Indian banks’ approach on interest rates, a new IMF study shows they are faster in effecting a hike in lending rates, but a rise in their deposit rates is not so quick. The IMF research also showed that banks are as such slow in effecting a change in their interest rates pursuant to the changes announced by the RBI in its policy rates.
In her research paper on ‘Monetary Policy in India: Transmission to Bank Interest Rates’, IMF Economist Sonali Das has said there is fresh evidence about “significant, albeit slow, pass-through of policy rate changes to bank interest rates in India.”
“There is evidence of asymmetric adjustment to monetary policy — the lending rate adjusts more quickly to monetary tightening than to loosening. In addition, the speed of adjustment of deposit and lending rates to changes in the policy rate has increased in recent years,” she wrote.
The IMF has earlier also flagged the issue of lenders in India being rather quicker in responding to the central bank’s monetary tightening measures.
The latest IMP paper said the “extent of pass-through to the deposit rate is larger than that to the lending rate, and the deposit rate adjusts more quickly to changes in the policy rate.”