The second stage involves the propagation of monetary policy impulses from the financial market to the real economy – by influencing spending decisions of individuals and firms. Within the financial system, money market is central to monetary operations conducted by the central bank. 22.
In the case of India, money market prior to the 1980s was characterised by paucity of instruments and lack of depth. Owing to limited participation, money market liquidity was highly skewed, characterised by a few dominant lenders and a large number of chronic borrowers.