New Delhi, March 19 -- The Reserve Bank of India (RBI) initiated the much-expected rate-cut cycle in February. The repo rate was cut from 6.5% to 6.25% on 7 February. A rate cut leads to an easing of interest rates on loans. However, loan rates have just started easing, after a rather longer transmission period.

Let us look at how transmission of rate action from the RBI percolates to the ground. The repo rate is the rate at which the RBI lends money to banks if required, one day at a time. When the RBI wants to increase or decrease interest rates in the economy, they increase or decrease the repo rate. Hence, this is the signal rate to the system for adjusting interest rates accordingly.

Immediate transmission of repo rate changes happ...