Pass-Through, Expectations, and Risks. What Affects Chilean Banks’ Interest Rates?
The analysis in this paper is focused on how the pass-through of changes in the monetary policy rate (MPR), expectations of MPR changes, and different measures of risks affect banks’ interest rates. Nominal and real lending and deposit rates are examined as are different maturities for the cases of nominal lending rates. Several measures of risk are constructed and incorporated into the analysis to take into account credit, market, liquidity, and interest rate risk. Evidence suggests that the pass-through of MPR changes is symmetric and instantaneous complete for the majority of the lending horizons of commercial and consumer loans with nominal rates. Pass- through is symmetric for commercial loans and deposits with real rates, but not for mortgage loans. Generally, liquidity, market, and credit risks are important for the banks when setting interest rates, while interest rate risks affect mainly consumer loans and deposits with nominal rates. Inflation changes affect the real rates of commercial loans and deposits as well as nominal consumer loans with a long maturity. Inflation expectations are mainly taken into account when setting real rates of commercial and mortgage loans. Expectations of MPR changes affect principally the rates of mortgage loans.
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