economics medium Fill in the Blank

To improve the transmission of monetary policy, the RBI mandated that all new floating-rate retail and MSME loans must be linked to an ___ Benchmark Lending Rate (EBLR), such as the RBI's Repo Rate.

  1. External
  2. US Treasury
  3. collusion
  4. 16

Answer: External

Historically, banks used internal benchmarks like the Base Rate or MCLR, which they manipulated to delay passing on the benefits of RBI rate cuts to consumers. By mandating an External Benchmark (like the Repo Rate or T-bill yield), the RBI ensured that any change in the central bank's policy rate is automatically and quickly transmitted to the end borrower's EMI.

Topic Banking - Lending Rates
Exam Relevance Banking, SSC, UPSC
More economics Questions Back to all questions