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The credit channel of monetary policy transmission in India is robust, however, its effectiveness is hampered by asset quality of issues of banks, an RBI working paper on “asset quality and credit channel of monetary policy transmission in India” revealed. Hence, for monetary policy actions to have their full impact, banks need to strengthen their capital position and address quality issues. While asset quality issues have an impact on the credit growth of the economy, better capital position of banks can negate the effect. “Controlling asset quality, in the short-run, the credit ch...

‘Credit channel of monetary policy transmission robust in India’ Mumbai | Updated on Our Bureau The credit channel of monetary policy transmission is robust in India, according to a Reserve Bank of India (RBI) working paper. “Its efficacy, however, is impaired if there is a deterioration in asset quality but is reinforced by better capital position of banks,” the paper said. The paper assessed that an increase (decrease) in policy rate by 100 basis points causes the credit to decline (increase) by 1.95 per cent with a lag of six quarters, validating the existence of a robust credit ch...