Interest Rate Pass-through: Asymmetric Evidence from India

Abstract

This article analyses interest rate pass-through in India using nonlinear autoregressive distributed lag (NARDL) model. The results suggest the rejection of decoupling hypothesis of interest rates. The results show evidence of cointegration between the policy rates and all other market interest rates. We find evidence of near complete, relatively rapid and asymmetric pass-through from policy rates to the immediate monetary policy target in India, that is, call money rates. However, we find evidence of incomplete, sluggish and asymmetric pass-through from policy rates to both long-term market interest rates and lending rates.