When interest rates are rising, depositors have the option of withdrawing their deposits prematurely and redepositing at the going higher rate. On the contrary, when deposit rates are falling, banks do not have the option of repricing deposits at the lower rate because of the asymmetry of the contract. This structural rigidity clogs monetary transmission.
Banks are typically unable to adjust their lending rates swiftly in response to policy signals until they are able to adjust on the cost side by repricing the deposits in the next cycle. Third, and importantly, monetary transmission is also impeded because of large government borrowings and illiquid bond markets. 32.