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

Sergio Mayordomo and Irene Roibás
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Irene Roibás: BANCO DE ESPAÑA

No 2312, Occasional Papers from 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.

Keywords: monetary policy; interest rate pass-through; bank lending channel; loans; retail deposits; heterogeneity. (search for similar items in EconPapers)
JEL-codes: E43 E47 E50 E51 E52 E58 E59 E65 G17 G21 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2023-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ifn, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:2312e

DOI: 10.53479/34572

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