This paper estimates the pass-through of monetary policy to bank lending rates in India under the base rate and marginal cost of funds-based lending rate (MCLR) regimes using dynamic panel data regression. A 100 basis point increase in the policy rate leads to a long-run increase in the weighted average lending rate on fresh rupee loans of 26-47 basis points under MCLR, compared to 11-19 basis points under the base rate regime. The study attributes the better transmission under MCLR to aligned liquidity management, the flexible inflation targeting framework, and decelerating economic activity.
Publisher
Humanities & Social Sciences Communications
Published On
Jul 13, 2023
Authors
Sadhan Kumar Chattopadhyay, Arghya Kusum Mitra
Tags
monetary policy
bank lending rates
MCLR
base rate
India
dynamic panel data
economic activity
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