Another consideration in a falling interest rate scenario could be that banks might want to protect their profit margin through a more sluggish adjustment of their lending rates. Notwithstanding various complexities, the interest rate channel of monetary transmission has been evident over the monetary policy cycles in the recent years.
The policy interest rate changes did impact the market interest rate in the same direction, though at varying intensity. The magnitude of changes in lending rates, however, more closely followed the changes in deposit rates (Table 2).