Monetary Policy in India: Transmission to Bank Interest Rates

Author: Sonali Das

Volume/Issue: Volume 2015 Issue 129

Publication date: June 2015

ISBN: 9781513598796

$20.00

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Topics covered in this book

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Banks and Banking , Money and Monetary Policy , WP , lending rate , deposit rate , Monetary policy transmission , India , deposit rates , lending rates , reverse repo , bank interest , speed of adjustment , error correction term , policy rate cut , correction term , target rate , adjustment speed , prime lending rate , Central bank policy rate , Repo rates , Bank credit , Prime rates

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Summary

This paper provides new evidence on the credit channel of monetary policy transmission in India. Using stepwise estimation of vector error correction models, the analysis finds significant, albeit slow, pass-through of policy rate changes to bank interest rates in India. There is evidence of asymmetric adjustment to monetary policy: the lending rate adjusts more quickly to monetary tightening than to loosening. In addition, the speed of adjustment of deposit and lending rates to changes in the policy rate has increased in recent years.