MONETARY POLICY TRANSMISSION AND BANKING SECTOR STABILITY

Abstract

Background: Monetary policy reaches the real economy through financial institutions, but bank balance sheets determine how quickly and how strongly that signal is transmitted. A rate cut can support credit, yet its effect is muted when funding costs remain high or banks are rebuilding liquidity and capital buffers. Aims: This article examines the mechanisms that connect the topic to organizational or policy performance and identifies the conditions that make those mechanisms stronger or weaker. Research Method: A structured narrative review integrates peer-reviewed research with authoritative policy, statistical, and professional sources, including BPS (2026); IMF (2026). Sources are coded by outcome, mechanism, boundary condition, and practical implication. Results and Conclusion: The synthesis indicates that outcomes are heterogeneous. Transmission and stability are sometimes treated as separate questions. In practice they are linked: a banking system that is fragile may transmit policy unpredictably, while aggressive transmission through weak underwriting can create future stability problems. Six recurring themes show that implementation quality, information, capability, and institutional context frequently matter as much as the headline policy or technology. Contribution: The article offers an evidence-based framework for banks, regulators and monetary authorities that translates the literature into decision principles without claiming primary data that were not collected.