Chapter

India's Monetary Policy Accommodation During the Global Crisis—Was It Effective?

Bruno Carrasco and Hiranya Mukhopadhyay

in Dimensions of Economic Theory and Policy

Published in print October 2011 | ISBN: 9780198073970
Published online September 2012 | e-ISBN: 9780199081615 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780198073970.003.0019
India's Monetary Policy Accommodation During the Global Crisis—Was It Effective?

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The first global financial crisis of the twenty-first century originated in the United States and spread around the world in September 2008. Like most other emerging economies, India also experienced an economic slowdown in 2008–2009 as export growth and domestic demand declined. The Reserve Bank of India (RBI) pursued two strategies to mitigate the impact of the financial crisis: it pumped liquidity into the banking system to ease the liquidity constraint and lowered the cost of bank loans to boost private demand. RBI succeeded in easing the liquidity constraint, but not in lowering lending rates despite sharp cuts in short-term policy rates. This chapter examines India's monetary policy accommodation during the global financial crisis and discusses why policy rate cuts did not result in a rapid decline of the banks' lending rates.

Keywords: financial crisis; India; monetary policy; Reserve Bank of India; liquidity; bank loans; lending rates; banks

Chapter.  5430 words.  Illustrated.

Subjects: Microeconomics

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