RBI set for rate cut, banks’ cost of funds may not drop

RBI initiated a rate-cutting cycle in Feb, reducing the repo rate by 25 basis points, but most banks have not lowered deposit rates significantly. Home loan borrowers have benefitted, but depositors have seen limited impact, with weighted average domestic term deposit rates at an eight-year high. The central bank is expected to announce another 25 basis point repo rate cut, but transmission to banks’ cost of funds may be delayed due to changing depositor behavior and liquidity pressures.

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