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Interest Rate Pass-through in Sri Lanka

Author

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  • Amarasekara, Chandranath

Abstract

The Central Bank of Sri Lanka has increasingly been relying on interest rates as the instrument for conducting monetary policy. Changes to the key monetary policy variables, the Repo and the Reverse Repo rates, are initially expected to be reflected in the OMO rates and the call money market rates, before being passedthrough to commercial bank retail interest rates. It is important to obtain a good understanding of the speed and magnitude of the interest rate pass-through to make timely monetary policy decisions in order to meet the objective of economic and price stability. This paper examines the size and speed of the pass-through from policy interest rates to call money market rates and from call money market rates to commercial bank retail interest rates. The paper concludes that the CBSL policy decisions are efficiently transmitted to the short end of the money market within a matter of days. Also, the pass-through from policy interest rates to the call money market rate is almost complete. However, the pass-through from call money market rates to both lending rates and deposit interest rates of commercial banks is sluggish and incomplete. The only exception is, perhaps, the rates on lending to prime customers, which show a faster and a fuller pass-through. Also, there is no evidence of an asymmetry of pass-through over different phases of the interest rate cycle.

Suggested Citation

  • Amarasekara, Chandranath, 2005. "Interest Rate Pass-through in Sri Lanka," MPRA Paper 64865, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:64865
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    File URL: https://mpra.ub.uni-muenchen.de/64865/3/MPRA_paper_64865.pdf
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. repec:aoj:ajeaer:2018:p:121-138 is not listed on IDEAS
    3. Roseline N. Misati & Esman M. Nyamongo & Anne W. Kamau, 2011. "Interest rate pass-through in Kenya," International Journal of Development Issues, Emerald Group Publishing, vol. 10(2), pages 170-182, July.
    4. repec:spr:jqecon:v:16:y:2018:i:1:d:10.1007_s40953-017-0079-2 is not listed on IDEAS
    5. Noura Abu Asab & Juan Carlos Cuestas, 2015. "Towards Adopting Inflation Targeting in Emerging Markets: The (A)symmetric Transmission Mechanism in Jordan," Working Papers 2015013, The University of Sheffield, Department of Economics.

    More about this item

    Keywords

    Monetary Policy; Central Banking; Policy Interest Rates; Interest Rate Pass-through;

    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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