According to the minutes of the MPC meeting released on Friday, external member Chetan Ghate had complained of monetary transmission getting worse at the RBI Monetary Policy Committee (MPC) meeting earlier this month.

In 2019, the Reserve Bank of India (RBI) has delivered 135 basis points (bps) of cuts in its key lending rate. There has, however, been repeated concerns expressed over the transmission of the repo, or the RBI's short-term rate for commercial banks, to the system.

"The decline in the WALR (weighted average lending rate) on fresh rupee remained at 29 bps as in the last review. The WALR on outstanding rupee loans has however increased by 7 bps! This is despite the MPC cutting rates by 110 bps in the February August window," Chetan Ghate said.

Ghate said that the implementation of a new set of norms on external benchmarking was a step in the right direction, but "as Milton Friedman said, monetary policy works with long and variable lags. In the Indian case, these lags are made worse by frictions in the banking system, complicating the MPC's efforts to implement counter-cyclical policy".

All members of the MPC voted to reduce the policy repo rate and to continue with the
accommodative stance of monetary policy. Chetan Ghate, Pami Dua, Michael Debabrata
Patra, Bibhu Prasad Kanungo and Shaktikanta Das voted to reduce the repo rate by 25 basis points.

Ravindra H. Dholakia voted to reduce the repo rate by 40 basis points.