When a central bank changes its policy rate, the effect on the real economy is not instant — it travels through a transmission chain with measurable lags at each link.

The chain runs: policy rate → money market rates → bank funding costs → lending rates → credit demand → spending/investment → inflation and employment.

Short end (0–3 months): Money market rates and short-term bond yields adjust almost immediately.
Medium term (3–12 months): Bank lending rates, mortgages, and corporate borrowing costs respond.
Long term (12–24 months): Real investment, consumption, and hiring decisions shift.
Full effect (18–24 months): Inflation responds, which is why central banks act pre-emptively.

Transmission channel	Typical lag	Key mechanism
Money market	Days	Overnight rates track policy rate
Bank lending	1–6 months	Funding cost pass-through
Asset prices	1–6 months	Discount rate and wealth effects
Real economy	6–18 months	Investment and consumption
Inflation	18–24 months	Demand and expectations