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The pass-through of market interest rates to bank interest rates

Author

Listed:
  • Sergio Mayordomo

    (BANCO DE ESPAÑA)

  • Irene Roibás

    (BANCO DE ESPAÑA)

Abstract

The pass-through of market interest rates to the financial conditions of households and firms is an essential element in the monetary policy transmission mechanism. In this paper, we analyse how this transmission is playing out in the current hiking cycle in the euro area and in Spain, as compared to previous cycles. We find that the pass-through to the interest rates on retail time deposits is slower than in previous hiking cycles in both jurisdictions. Moreover, a slower pass-through is also observed for mortgages in Spain. We then show there is significant heterogeneity in this pass-through across euro area countries, especially for mortgages and retail time deposits. This heterogeneity is driven by both bank and country characteristics. More specifically, in the case of deposits, we find that almost half of the difference between the remuneration of retail time deposits in Spain and the euro area is driven by differences across banking sectors in the need to raise funds through deposits to supply credit.

Suggested Citation

  • Sergio Mayordomo & Irene Roibás, 2023. "The pass-through of market interest rates to bank interest rates," Occasional Papers 2312, Banco de España.
    • Handle: RePEc:bde:opaper:2312e
    DOI: https://doi.org/10.53479/34572
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    More about this item

    Keywords

    monetary policy; interest rate pass-through; bank lending channel; loans; retail deposits; heterogeneity.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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