The development of deeper, more complete and more competitive financial markets have strengthened the pass-through effect of central bank interest rates to market interest rates and has led to a closer relationship between market and bank interest rates.
Consequently, the deepening of financial markets has served to amplify the effects of monetary policy on bank interest rates, and ceteris paribus other variables such as inflation. However a countervailing truth has also been evident. The major monetary policy transmission channel through bank lending has become less important, yet new regulations are still focusing on the quality of bank credit.