Monetary policy is effected through changes in the repo rate, reverse repo rate and the cash reserve ratio. The response to changes in policy rates since 2001 in three different respects - the inflation rate, interest rates and the benchmark rates - is examined here. The transition from the benchmark prime lending rate to the base rate has brought about better transmission of policy rate signals to the lending rates of banks. Suggestions to enhance transparency and improve the transmission channels of policy rates include setting a sunset date for the BPLR, disclosing the methodologies in computing the BR, and resuming the practice of disseminating the actual lending rate structure of banks.
Cyclical Responses to Monetary Policy
EPW Research Foundation
