The monetary transmission mechanism involves the process through which changes in the central bank's policy rate affect the economy, particularly through interest rates. The indicators used to observe this mechanism include the Weighted Average Lending Rate (WALR), the Weighted Average Domestic Term Deposit Rate (WADTDR), and the 1-year median Marginal Cost of Funds based Lending Rate (MCLR). These indicators reflect changes in lending and deposit rates, which are crucial for understanding how monetary policy changes are transmitted through the banking system to the broader economy. The SDF rate, on the other hand, is primarily a tool for managing liquidity and is not directly used to observe the monetary transmission mechanism. Therefore, the correct answer is option 2: 1, 2, and 3.