Banking Central | The RBI has cut rates. But nothing changes overnight

RBI rate actions tend to influence lending rates but may not immediately

Typically, almost every time, RBI rate actions trigger a set of usual questions. If one takes the latest instance too, the Reserve Bank of India’s rate cut on Thursday has sparked the same set of questions: Will my EMI come down? Should I wait before fixing a home loan? Will deposit rates drop? And the answer to all three is the same--there is no magic immediately. Let’s look at these questions in this column.

Of course, a policy rate cut is big news, but it is not a switch that changes everything overnight. Think of it as easing the steering wheel of a large ship. You turn it now, but the ship responds slowly. That is exactly how monetary policy works.

The RBI cut the repo rate by 25 basis points, bringing it to 5.25 per cent. It also promised to inject Rs one lakh crore into the banking system through open market operations. Both decisions are meant to make borrowing cheaper over time. But banks don’t adjust their own rates the moment the Governor finishes speaking.

They look at their cost of funds. This means what they pay depositors, how much cash they have, and how tight or loose liquidity is.

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This is why the RBI added the liquidity boost. Without it, the rate cut alone would not have travelled far. When liquidity improves, banks get more comfortable lowering lending rates. Even then, the response is staggered. Home loan EMIs, for instance, may fall a little in the next few weeks, not the next few hours. For MSMEs and small borrowers, it may take even longer.

For savers, the change is also gradual. Deposit rates will not collapse suddenly. Banks compete fiercely for deposits, and nobody wants to lose customers by cutting too quickly. The larger worry for savers is inflation. The good news is that inflation has dropped to historic lows, which means the real value of your savings is protected even if deposit rates soften a bit.

If you follow markets, the reaction there too follows this pattern. Bond yields fall first because the bond market moves instantly to RBI signals. Equity markets respond to a mix of global cues, earnings, and sentiment. A rate cut helps, but it doesn’t rewrite the script.

So why make such a big deal about 25 basis points if it doesn’t transform anything overnight? Because monetary policy is about momentum. It tells businesses, banks, and consumers which way the wind is blowing. After months of waiting, today’s move signals the start of a cycle where borrowing costs could trend lower for a while-- provided inflation stays tame.

What matters is the direction, not the speed. The RBI doesn’t want a sudden surge in borrowing or a sudden drop in deposit rates. It wants a slow, controlled shift, where the economy gets support without losing stability.

So, the message for the average reader is simple: the rate cut will help you--just not all at once. Your EMI will ease, deposit rates may soften a bit, and credit might feel a little easier. But monetary policy is not a breaking-news event. It is a slow-moving process, and today was just the first step.