Which of the following indicators is/are used to observe the monetary transmission mechanism in the economy? 1. Weighted average lending rate 2. Weighted average domestic term deposit rate 3. 1-year median MCLR 4. SDF rate Select the correct answer using the code given below. (a) 1 and 2 only (b) 1, 2 and 3 (c) 3 and 4 (d) 4 only

Monetary transmission refers to the process through which changes in the central bank's policy rates influence market interest rates and the broader economy. To monitor this pass-through, the Reserve Bank of India (RBI) tracks specific indicators. The Weighted Average Lending Rate (WALR) on fresh and outstanding loans measures the actual cost of credit for borrowers [4]. The Weighted Average Domestic Term Deposit Rate (WADTDR) tracks how policy changes affect the cost of funds for banks and the returns for depositors [5]. Additionally, the 1-year median Marginal Cost of Funds-based Lending Rate (MCLR) serves as a critical internal benchmark for pricing loans, reflecting how banks adjust their minimum lending rates in response to policy shifts [1]. While the Standing Deposit Facility (SDF) rate is a policy tool that forms the floor of the liquidity adjustment facility corridor, it is an instrument of policy rather than an indicator used to observe the transmission mechanism itself [3].

Sources

1. [2] https://www.nature.com/articles/s41599-023-01883-9
2. [3] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > MCLR > p. 91
3. [4] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > INCREMENTAL CASH RESERVE RATIO > p. 169
4. [5] https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2120509
5. [1] https://pmc.ncbi.nlm.nih.gov/articles/PMC7309432/