The Interest Rate Channel of Monetary Transmission Mechanism in India: An Empirical Study

With the deregulation of interest rates in India, it is expected that the traditional channel of monetary transmission mechanism, which is tire interest rates channel will be revitalized. The present study examines the monetary policy transmission through the interest rates by analyzing the interest rates pass through within the spectrum of interest rates. In the process the pass through of the policy signal among select short term rates and long term rates was carried out, using Ordinary Least Square (OLS) approach. The results reveal that the transmission of a monetary policy signal is incomplete. It can be concluded that while some transmission of the monetary policy signal takes place in the short run, the policy impulses get lost in the long run.