Rate cues from the RBI are transmitted to the economy when lenders adjust their lending, deposit rates based on RBI's rate actions. For instance, if the RBI hikes the repo rate then banks will have to borrow short-term funds at a higher cost from the central bank. This additional cost is passed on to the customers through lending rate hikes. This curbs demand for money. Similarly, if the RBI cuts the repo rate, the borrowing cost for banks accordingly declines. Banks are then expected to pass on the benefit to borrowers. Often, monetary transmission happens based on the prevailing liquidity situation. Transmission works better in a tight liquidity scenario.