Monetary Policy in India : Transmission to Bank Interest Rates

This paper provides new evidence on the credit channel of monetary policy transmissionin India. Using stepwise estimation of vector error correction models, the analysis findssignificant, 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 adjustsmore quickly to monetary tightening than to loosening. In addition, the speed ofadjustment of deposit and lending rates to changes in the policy rate has increased inrecent years.