Which of the following indicators is/are used to observe the monetary

Which of the following indicators is/are used to observe the monetary transmission mechanism in the economy?

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1. Weighted average lending rate
2. Weighted average domestic term deposit rate
3. 1-year median MCLR
4. SDF rate

Select the correct answer using the code given below.

1 and 2 only

1, 2 and 3

3 and 4

4 only

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This question was previously asked in

UPSC CDS-1 – 2024

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The monetary transmission mechanism (MTM) describes how changes in the central bank’s policy rate are transmitted through the economy to influence inflation and output. Observing this mechanism involves tracking how various interest rates and credit conditions respond to policy changes. Weighted average lending rate (WALR), weighted average domestic term deposit rate (WADTDR), and 1-year median MCLR (Marginal Cost of Funds based Lending Rate) are key indicators of how policy rate changes affect the rates charged by banks to borrowers and offered to depositors. These are crucial steps in the transmission process to the real economy.

WALR, WADTDR, and MCLR are standard indicators used to assess the pass-through of monetary policy changes to bank interest rates in India.

The SDF rate is a policy rate set by the RBI and is part of the monetary policy framework. While changes in the SDF rate *drive* the initial stages of transmission (especially in the money market), the rates like WALR, WADTDR, and MCLR are used to *observe* how the policy signal has been transmitted to the banking system’s retail rates. All four rates (including money market rates influenced by SDF) are tracked to understand MTM, but 1, 2, and 3 are direct indicators of transmission to the banking system’s interface with the public.

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