Mumbai, Aug 13 Softer lending rates in the Indian economy due to the transmission of the RBI's repo rate cuts to other rates, such as bank lending rates and deposit rates, continued in July, leading to an improvement in financial conditions during the month, according to a report released on Wednesday.
Key bank lending rates, such as the one-year marginal cost of funds-based lending rate (MCLR) and auto loan rate, eased 15 bps to 8.75 per cent and 7 bps, respectively to 9.19 per cent, while deposit rates eased 3 bps to 6.37 per cent during the month making it cheaper for banks to raise funds, the Crisil Research report said.
The weighted average lending rate (WALR) on fresh rupee loans has eased sharply as well. As per the latest available data, the WALR eased 58 bps on-month to 8.62 per cent in June, the lowest since October 2022.
The surplus in systemic liquidity also inched up in July, led by increased government spending and a decline in currency in circulation, pulling down money market rates further.
The RBI’s Monetary Policy Committee (MPC) reduced the policy rate by 100 basis points (bps) between February and June. As lending rates eased, bank credit growth improved, but remained weaker than in the January-March quarter.
Bank credit growth has improved in the past two months now. Sectoral data, available till June, indicates credit growth picked up in the personal loans, services and industry segments.
However, concerns about US tariffs weighed on markets ahead of the August 1 deadline, with equity markets ending July lower than June. Foreign portfolio investors (FPIs) were net sellers of equities.
The 10-year government security (G-sec) yield saw an uptick towards the end of the month, driven by mild FPI outflows in debt in the second half of the month. The yield rose in June and July despite rate cuts, leading to a sharp rise in the term premium.
For the fourth straight month, systemic liquidity remained in surplus, which widened a tad in July compared with June. The RBI net absorbed Rs 3 lakh crore in July, slightly higher than the Rs 2.7 lakh crore in June. The higher surplus was supported by an increase in government spending and a decline in currency in circulation, the report said.
Another positive for the economy was that crude oil prices remained broadly stable at $71 per barrel from $71.5 amid the Organisation of the Petroleum Exporting Countries and allies increasing oil output, the report added.
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