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Policy rate pass-through and the adjustment of retail interest rates: Empirical evidence from Malaysian financial institutions

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  • Zulkhibri, Muhamed

Abstract

The paper examines the interest rate pass-through from money market rates to various retail rates in Malaysia within the framework of an error-correction model. We estimate the short- and long-run interest rate pass-through and analyse the asymmetric behaviour of financial institutions under different monetary regimes. The results show that both deposit and lending rate pass-throughs are incomplete. However, pass-through and speed of adjustment vary across financial institutions and retail rates. This analysis also shows that interest rate adjustments are asymmetric, with more significant adjustments taking place under monetary easing than under monetary tightening. These results provide support for the existence of the interest rate channel of monetary policy in Malaysia. There is thus a need to conduct effective monetary operations to support efficient monetary transmission in Malaysia.

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  • Zulkhibri, Muhamed, 2012. "Policy rate pass-through and the adjustment of retail interest rates: Empirical evidence from Malaysian financial institutions," Journal of Asian Economics, Elsevier, vol. 23(4), pages 409-422.
    • Handle: RePEc:eee:asieco:v:23:y:2012:i:4:p:409-422
    DOI: 10.1016/j.asieco.2012.04.001
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    Cited by:

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    2. Afsin Sahin, 2019. "Loom of Symmetric Pass-Through," Economies, MDPI, vol. 7(1), pages 1-25, February.
    3. Holmes, Mark J. & Iregui, Ana María & Otero, Jesús, 2015. "Interest rate pass through and asymmetries in retail deposit and lending rates: An analysis using data from Colombian banks," Economic Modelling, Elsevier, vol. 49(C), pages 270-277.
    4. Hao Dong & Yingrong Zheng & Na Li, 2023. "Analysis of Systemic Risk Scenarios and Stabilization Effect of Monetary Policy under the COVID-19 Shock and Pharmaceutical Economic Recession," Sustainability, MDPI, vol. 15(1), pages 1-32, January.
    5. Perera, Anil & Wickramanayake, J., 2016. "Determinants of commercial bank retail interest rate adjustments: Evidence from a panel data model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 45(C), pages 1-20.
    6. Hussan, Subithabhanu & Masih, Mansur, 2014. "Are The Profit Rates of the Islamic Investment Deposit Accounts Truly Performance Based? A Case Study of Malaysia," MPRA Paper 57689, University Library of Munich, Germany.

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    More about this item

    Keywords

    Interest rate pass-through; Price rigidity; Monetary policy; Malaysia;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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