Policy rate cuts and pace of transmission: Tracking an impactful five months in 2025

By

Aanya Thakur

, ET BureauLast Updated: Aug 04, 2025, 06:47:00 AM IST

Synopsis

The Reserve Bank of India (RBI) reduced the repo rate by 100 basis points between February and June 2025, bringing it down to 5.5%. Banks responded with a 58 bps drop in the weighted average lending rate (WALR) on fresh loans in June, reaching 8.62%.

How much has the RBI cut the policy rate recently?
RBI reduced repo rate by 100 basis points over five months (Feb–June 2025), bringing it down to 5.5%

How have the banks responded
On fresh loans: Weighted average lending rate (WALR) dropped 58 bps in June to 8.62%—the sharpest monthly decline— from 9.20% in May

On outstanding loans: WALR declined 22 bps in June to 9.45%

Bank group-wise transmission

• PSU banks: Strongest pass-through on outstanding loans: 34 bps, now at 8.76%
• Private banks: Lower transmission: 28 bps, with WALR at 10.47%

Agencies

Transmission of rate since February
On fresh loans (since Feb): 78 bps (9.40% to 8.62%) On outstanding loans: 33bps (9.78% to 9.45%)

Benchmark Impact

• External Benchmark Linked Rate (EBLR): Immediate transmission
• Marginal Cost of Lending Rate (MCLR): Slower adjustment
• One-year average MCLR fell from 9% in March to 8.75% in June

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