Economics • Banking & FinanceMedium
What is the primary objective of introducing 'External Benchmark Based Lending Rate (EBLR)' by the RBI for commercial banks?
A. To ensure faster transmission of monetary policy actions to borrowers.✓ Correct Answer
B. To completely eliminate the role of deposits in funding bank credit.
C. To mandate uniform interest rates across all public and private sector banks.
D. To replace the Repo Rate with an international benchmark like LIBOR.
💡 Solution & Explanation
External Benchmark Based Lending Rates were mandated by the Reserve Bank of India to quicken monetary policy transmission from central bank rate cuts to retail borrowers. Other choices erroneously suggest the elimination of deposits or the adoption of foreign indices like LIBOR. Linking loan pricing to external metrics minimizes bank discretion in delaying rate cuts. The repo rate serves as the primary policy interest rate managed by the central bank.
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