· Monetary policy transmission is said to have occurred when the changes in the policy rates (repo, reverse repo) will lead to desired effect in the economy.

· If the policy rates are decreased to spur growth in the economy, monetary policy transmission is said to have occurred if corresponding change is reflected in terms of lower interest rates in the retail sector. (Housing, auto loans etc.)

· In 2016, the Reserve Bank of India (RBI) introduced the concept of MCLR (Marginal Cost of funds based Lending Rate), under which the banks use the marginal cost for obtaining funds to set their lending rates.

· Marginal cost includes cost that the banks incur to obtain fund, like in case of deposit from customers or at repo rate from RBI.

· Thus, since the marginal cost of lending rate is linked to policy rates, monetary policy transmission is said to occur.