Monetary Policy Transmission: Visible Disconnect – IEMS’ Sasi Gopalan Pens Op-Ed on India’s Incomplete Interest-rate Pass-through Mechanism

Published on: 2015-08-16

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IEMS’ Sasidaran Gopalan was featured in an eSocialScience op-ed on India’s woefully incomplete interest-rate pass-through mechanism, and how the Reserve Bank of India’s recent rate cuts clearly illustrate the disconnect of monetary policy transmission in India.

As Dr. Gopalan argued:

The strength of a central bank’s monetary policy and its impact on the real economy depends to a great extent on the effectiveness of the so called monetary policy transmission, which broadly refers to the process by which monetary policy changes are transmitted to the real economy. The four common channels through which monetary transmission occurs are interest rates, exchange rates, asset prices, and the credit channel, with the credit channel further broken down into the bank lending channel and the balance sheet channel. While all these different channels are important for a smooth functioning of monetary transmission, in emerging markets like India, the interest rate and bank lending channels assume greater significance. The interest rate channel should now matter even more given India’s recent move to an inflation-targeting regime.

Read the full article here: eSocialScience

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