Interest Rate Transmission of Monetary Policy: India Perspective

Abstract

The workings of monetary policy have often been construed as a “black box.” Not only does the nature of transmission channels vary across the economies, the significance and dominance of one channel over another is also a function of the nature and developmental stage of the economy under consideration. In this article, we attempt to understand the different channels of monetary policy operation and study which is(are) the dominant channel(s) in India. Our primary focus then is to identify the different hurdles that prevent the efficient transmission of monetary policy and assess few policy prescriptions to mitigate them. A simultaneous view from the perspective of business-government-society is also taken.