RBI makes fresh bid to boost transmission mechanism

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The Reserve Bank of India has made a fresh attempt to deal with the long-running problem of the pass-through of policy rates to the real economy, by mandating banks to link floating-rate loans to an “external benchmark”.

“It has been observed that due to various reasons, the transmission of policy rate changes to the lending rate of banks under the current MCLR [marginal cost of fund-based lending rate] framework has not been satisfactory,” the RBI said in a statement on September 4.

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