The word “monetary transmission” often seen in news is related to which of the following?

[A] To contain growing Non-Performing Assets (NPAu2019s) of commercial banks.

[B] Providing timely credit for agriculture and other economically weaker sections.

[C] Smooth transmission of tax devolution to states from centre.

[D] The pass-through of the RBIu2019s rate actions to the economy at large.

Answer: D

Notes:

Monetary transmission is the pass-through of the RBI’s rate actions to the economy at large.

As you know, the RBI’s most important task is to keep tabs on inflation by adjusting money supply.
It also monitors the exchange rate. To control all this, the RBI uses many monetary tools.
The repo rate, reverse repo rate and cash reserve requirement are being the key instruments.
Let us take the repo rate, for instance. This is the rate at which the RBI lends short-term funds to banks to manage their day-to-day operations.
When the RBI wants to stimulate growth, it cuts the repo rate to reduce the cost of borrowings.

Banks get money at a cheaper rate. If this is passed on to borrowers, then monetary transmission is said to have happened smoothly.

Source: The Hindu