RBI Bulletin: Supply Shocks Could Turn Into Demand Slowdown
Why in the news
The central bank’s monthly bulletin said the economy is holding up, but lasting supply-side disruptions could spill into demand through second-round effects and cool growth.
Key facts
- Risk channel: higher energy and transport costs from the Strait of Hormuz conflict passed on to consumers; second-round effects follow.
- Early cooling seen in port cargo and air passenger traffic.
- Persistent inflation may make households cut discretionary spending, turning a supply problem into a demand shock.
- Forex: net purchase of $7.4 billion in February 2026.
- March 27, 2026: banks’ Net Open Position capped at $100 million.
- April 8 MPC: repo rate 5.25%, neutral stance, wait-and-watch.
Rate transmission, Feb 2025 to Feb 2026
| Measure | Private banks | Public sector banks |
|---|---|---|
| Fall in WALR on fresh loans | 104 bps | 75 bps |
| Fall in WALR on outstanding loans | 94 bps | 77 bps |
| Deposit rate softening | Broadly similar | |
- Foreign banks recorded the sharpest cuts in both deposit and lending rates.
- Term deposit transmission was led by bulk deposits, as banks trimmed rates on large institutional accounts amid surplus liquidity.
Background
- WALR: Weighted Average Lending Rate, the loan-size-weighted average rate banks charge.
- Basis point: 100 bps equals 1%.
- Second-round effect: an initial price rise (oil) spreads to food, fares and manufacturing and can feed wage demands.
- Private banks pass on cuts faster, as they have more benchmark-linked loans and flexible liabilities.
- Dollar purchases build reserves that can later be sold to support the rupee.
Exam angle
- Numbers: repo 5.25%, $7.4 billion, 104 vs 75 bps.
- Related terms: supply shock, WALR, bps, pass-through, bulk deposits.