Is the Repo Rate Truly Passed Through? An Empirical Analysis of Lending Rate Response in India (2010–2020)

This paper focuses on the effectiveness of the monetary policy transmission system in India in terms of analysing how changes which are brought about in the repo rate are transferred to the commercial bank lending rates. Based on the quarterly data of 2010-2020 collected from the Reserve Bank of India, the paper uses autoregressive methods applicable to the analysis of short-run and long-run pass-through elasticity. Vector Autoregression (VAR) and Autoregressive Distributed Lag (ARDL) techniques have also been applied. It has been in the initial stages revealed that the repo rate has no mutually exclusive relationship with the lending rates, although the pass-through is incomplete and slow, mostly in the economic uncertain times. These outcomes denote the existence of structural stiffness in the Indian banking industry and the insufficiency of communication and working systems to improve policy transmission.