Overview
The RBI bulletin dated 22 June 2026 reveals that the recent 50 basis‑point (bps) cut in the repo rate between March and April 2026 was not passed on uniformly to borrowers and depositors.
Key Developments
- During the easing cycle, private sector banks passed the cut more strongly to lending rates, while public sector banks showed a relatively stronger pass‑through to deposit rates.
- From May 2022 to Jan 2025, the RBI raised the repo rate by 250 bps. From Feb 2025 to Apr 2026, it lowered the repo rate by 85 bps.
- Weighted average deposit rate (WADR) on fresh deposits fell only 85 bps in the easing phase, compared with a rise of 259 bps during the hike phase.
- For outstanding deposits, transmission was even weaker – 206 bps rise during hikes versus 50 bps fall during cuts.
- Credit growth outpaced deposit growth: in May 2026, credit expanded by 17.7 % while deposits grew by 12.2 %, widening the credit‑deposit wedge since Aug 2025.
Important Facts
A basis point equals 0.01 %. The RBI’s repo‑rate hike of 250 bps was matched by a 259 bps rise in WADR, indicating a slightly stronger pass‑through to depositors. Conversely, the 85 bps repo‑rate cut translated into only an 85 bps dip in fresh‑deposit rates and a modest 83 bps fall in overall lending rates.
Exam Relevance
This bulletin illustrates the concept of policy transmission. Understanding why transmission differs between public sector banks and private sector banks helps answer questions on monetary‑policy effectiveness, financial inclusion, and credit‑deposit dynamics—core topics in GS‑3.
Way Forward
- Strengthen the transmission mechanism by encouraging uniform pass‑through across bank categories.
- Monitor the widening credit‑deposit wedge to prevent liquidity mismatches.
- Use targeted tools (e.g., CRR adjustments, open‑market operations) to align deposit rates with policy intent.
- Enhance data transparency so policymakers can assess sector‑wise impacts promptly.