Despite better transmission, MCLR didn't meet expectations: RBI paper

The views expressed in the paper are those of the authors and not necessarily those of the institution to which they belong

The marginal cost of funds-based lending rate (MCLR) regime leads to better pass-through of changes in benchmark policy interest rates than the previous base rate regime, a working paper written by the Reserve Bank of India (RBI) staff said.

According to the paper, under the MCLR regime, an increase of 100 basis points (bps) in the policy rate leads to a rise of 26-47 bps in the weighted average lending rate of banks versus 11-19 bps during the base rate regime.

The study examines the nature of pass-through to lending interest rates during the period April 2004-July 2019. The paper,