RBI Monetary Policy: Economy To See Rate Cut Impact In Two Quarters
The transmission of the rate cut would depend on the average tenure of existing deposits, RBI Governor Sanjay Malhotra said.

The Reserve Bank of India’s Monetary Policy Committee on Friday reduced the benchmark lending rate by 25 basis points, marking the first rate cut in five years. This decision aims to boost sluggish economic growth, supported by easing inflation expectations. However, it will take about two quarters for the rate cut to be fully passed on to the economy.
During the press conference following the MPC meeting, RBI Governor Sanjay Malhotra explained that the rate cut would immediately reduce interest rates for loans linked to the External Benchmark Lending Rate. “Those deposits which are already there are already fixed. New deposits that are going to come — it is only with respect to those that these changes will come into effect,” Malhotra said.
He emphasised that the transmission of the rate cut would depend on the average tenure of existing deposits and that the RBI would provide necessary support and liquidity to expedite this process.
Deputy Governor Swaminathan Janakiraman provided further clarity on the transmission timeline for loans linked to the Marginal Cost of Funds Based Lending Rate. “Essentially, the external benchmark rates are about 40% on the loan book, on which, we will see more immediate impact. In respect of the book linked to MCLR, which is equivalent to the EPLR book, it typically takes about two quarters for the effect to play out, based on our past experience,” Janakiraman stated.
While most MCLR adjustments occur every six months, some loans are linked to three-month or one-year benchmarks, which can affect the transmission timeline, he noted.
The rate cut decision was announced by RBI Governor Sanjay Malhotra during his debut policy speech. The Monetary Policy Committee decided to cut the repo rate by 25 basis points to 6.25% and maintained ‘neutral’ stance unanimously. Consequently, the standing deposit facility rate stands adjusted to 6%, and the marginal standing facility rate and the bank rate stand adjusted to 6.5%.
The RBI estimated that real GDP growth for fiscal 2026 will come at 6.7%, with first-quarter growth seen at 6.7% and second-quarter growth pegged at 7%.