Rate cuts alone may not be enough to revive capex investments
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Synopsis
An assessment of the bank-lending channel on monetary policy transmission by the Reserve Bank of India economists suggests that an investment decision on fixed assets by firms would depend on the liquidity positions of the lending banks.
Agencies
Investment in fixed assets is found to increase for firms that borrow from liquid banks, when these banks increase their lending.
MUMBAI: An expansionary monetary policy may not necessarily revive investment and capex in the economy as other factors are also at play. Even as transmission of policy rates takes place with a lag, a new research paper by RBI economists shows that the liquidity position of banks and a host of other factors also impacts the pace of transmission, the nature of lending and its ultimate impact on economic activity.