Nevertheless, it is fair to regard the credit channel as running alongside the interest rate channel to produce monetary effects on real activity. Changes in interest rates by the monetary authorities also induce movements in asset prices to generate wealth effects in terms of market valuations of financial assets and liabilities.
The exchange rate channel is relatively less important in the Indian context, though its relevance is gradually increasing. In the recent period, a fifth channel – expectations – has assumed prominence in the conduct of forward-looking monetary policy in view of its influence on the traditional four channels.