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The impact of monetary policy on bank lending rate in South Africa

Author

Listed:
  • B.T. Matemilola
  • A.N. Bany-Ariffin
  • Fatima Etudaiye Muhtar

Abstract

The pass-through of the policy rates to bank lending rate is an important subject matter because it measures the effectiveness of monetary policy to control inflation or stabilize the economy. This study investigates the long-run interest rate pass-through of the money market rate to the bank lending rate and asymmetric adjustment of the bank lending rate. The study applies the momentum threshold autoregressive and asymmetric error correction models. The asymmetric error correction results reveal that bank lending rate adjusts to a decrease in the money market rate in South Africa. The findings suggest that the South African commercial banks adjust their lending rate downward but the lending rate appears rigid upward, which supports the customer reaction hypothesis.

Suggested Citation

  • B.T. Matemilola & A.N. Bany-Ariffin & Fatima Etudaiye Muhtar, 2015. "The impact of monetary policy on bank lending rate in South Africa," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 15(1), pages 53-59, March.
    • Handle: RePEc:bor:bistre:v:15:y:2015:i:1:p:53-59
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    Citations

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    Cited by:

    1. Ibrahim, Muazu & Alagidede, Paul, 2018. "Effect of financial development on economic growth in sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1104-1125.
    2. Paul Alagidede, 2018. "Effect of Financial Development on Economic Growth in sub–Saharan Africa: Does Sectoral Growth Matter?," Working Papers 754, Economic Research Southern Africa.
    3. Oleksandra Chmel & Valentyna Sinichenko & Daryna Pustovoit & Anton Shmihel, 2019. "Meta-Analysis: Effect of central bank’s key policy rate on banks’ lending interest rates," Modern Economic Studies, Kyiv School of Economics, vol. 2(1), pages 2-11.
    4. Jiří Gregor & Aleš Melecký & Martin Melecký, 2021. "Interest Rate Pass‐Through: A Meta‐Analysis Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 35(1), pages 141-191, February.
    5. Omar Alaeddin & Moutaz Abojeib & Wajahat Azmi & Mhd Osama Alchaar & Kinan Salim, 2019. "The Effectiveness of the Bank Lending Channel: The Role of Banks' Market Power and Business Model," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 13(3), September.
    6. Andrew Phiri, 2018. "Asymmetric Pass-through Effects from Monetary Policy to Housing Prices in South Africa," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 16(2 (Summer), pages 123-140.
    7. Afsin Sahin, 2019. "Loom of Symmetric Pass-Through," Economies, MDPI, vol. 7(1), pages 1-25, February.
    8. Machava, Agostinho, 2017. "The Macroeconomic Determinants of the Pass-Through from the Market Interest Rate to the Bank Lending Rate in Mozambique," Umeå Economic Studies 954, Umeå University, Department of Economics.
    9. Олександра Чмель & Валентина Сініченко & Дарина Пустовойт & Антон Шмігель, 2019. "Мета-Аналіз: Вплив Ключової Ставки Центрального Банку На Ставки Банківського Кредитування," Suchasni ekonomichni doslidzhennja, Kyiv School of Economics, vol. 2(1), pages 2-11.
    10. Hillary Chijindu Ezeaku & Imo Godwin Ibe & Uche Boniface Ugwuanyi & N. J. Modebe & Emmanuel Kalu Agbaeze, 2018. "Monetary Policy Transmission and Industrial Sector Growth: Empirical Evidence From Nigeria," SAGE Open, , vol. 8(2), pages 21582440187, April.

    More about this item

    Keywords

    Monetary policy; Interest rate pass-through; Asymmetric co-integration;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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