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Adjustment of Commercial Bank's Interest Rates and the Effectiveness of Monetary Policy in South Africa

Author

Listed:
  • Meshach Aziakpono
  • Magdalene Kasyoka Wilson
  • Jason Manuel

    (Rhodes University)

Abstract

The study uses the asymmetric error correction model as in Scholnick (1996) and two wholesale bank interest rates (prime interbank lending and the negotiable certificate of deposit rates), to examine how market interest rates adjust to changes in the SARB official rate under different policy regimes in South Africa. The study covered the period between 1973 and 2004, which was divided into six sub-periods to reflect the different monetary policy regimes in South Africa. The results indicate a varying degree of adjustment under the different regimes, but clearly show that there was greater speed of adjustment under regimes that stress more market-oriented policies as opposed to control measures. The response of market Interest rates to monetary policy was quick and with high magnitude which suggest a fairly efficient money market. The evidence on the asymmetric adjustment was weak. On the whole, the results of this study suggest that a market-oriented policy would be more effective in transmitting the effects of the Bank’s monetary policy stance to the rest of the economy.

Suggested Citation

  • Meshach Aziakpono & Magdalene Kasyoka Wilson & Jason Manuel, 2007. "Adjustment of Commercial Bank's Interest Rates and the Effectiveness of Monetary Policy in South Africa," The African Finance Journal, Africagrowth Institute, vol. 9(1), pages 1-20.
    • Handle: RePEc:afj:journl:v:9:y:2007:i:1:p:1-20
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    Citations

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    Cited by:

    1. Heinrich Nel & Tadiwa Mangwengwende & Zivanemoyo Chinzara, 2011. "Bank concentration and the interest rate pass-through in Sub-Saharan African countries," Working Papers 233, Economic Research Southern Africa.
    2. Andrew Phiri, 2018. "Has the South African Reserve Bank responded to equity returns since the sub-prime crisis? An asymmetric convergence approach," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 10(3), pages 205-225.
    3. Phiri, Andrew, 2017. "Has the South African Reserve Bank responded to equity prices since the sub-prime crisis? An asymmetric convergence approach," MPRA Paper 76542, University Library of Munich, Germany.
    4. Lumengo BONGA-BONGA, 2009. "Monetary Policy and Long Term Interest Rate in South Africa," EcoMod2009 21500016, EcoMod.
    5. C De Angelis & Mj Aziakpono & A Pierre Faure, 2005. "The Transmission Of Monetary Policy Under The Repo System In South Africa: An Empirical Analysis♣," South African Journal of Economics, Economic Society of South Africa, vol. 73(4), pages 657-673, December.
    6. Rutayisire, Musoni J., 2017. "Modelling interest rate pass-through in Rwanda: is the interest rate dynamics symmetric or asymmetric ?," MPRA Paper 90178, University Library of Munich, Germany, revised 23 Sep 2018.
    7. Moid U. AHMAD & Shamima NASRIN, 2017. "An analysis of the effect of monetary policy changes on macroeconomic factors," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(611), S), pages 303-318, Summer.

    More about this item

    Keywords

    Asymmetric Error Correction Model; Interest Rate Adjustment; Monetary Policy; South Africa;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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