Monetary Policy in India: Transmission to Bank Interest Rates

June 23, 2015

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Bank credit, Banking, Central bank policy rate, Deposit rates, Financial services, Money, Prime rates, Repo rates

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

Pages:
33
Volume:
2015
DOI:
https://doi.org/10.5089/9781513598796.001
Issue:
129
Series:
Working Paper No. 2015/129
Stock No:
WPIEA2015129
ISBN:
9781513598796
ISSN:
1018-5941

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