Saturday, February 6, 2016

More on monetary policy transmission

Good post from Andy Mukherjee captures the monetary policy transmission problem in India. Despite the 125 basis points repo rate cut, the G-sec and corporate bond yields have actually gone north.
Apart from the structural problems in credit intermediation in India, there are atleast two other factors at play here. One, embattled banks are using the cushion from lowering rates to repair their balance sheets. Two, the corporate debt overhang coupled with weak economic prospects, both rising with time, naturally raises the cost of capital for borrowers.  

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