Impact of monetary policy on financial inclusion in emerging markets

Peterson Ozili

MPRA Paper from University Library of Munich, Germany

Abstract: The study investigates the impact of monetary policy on the level of financial inclusion in the big-five emerging market countries from 2004 to 2020. Several indicators of financial inclusion and the central bank interest rate were used in the analysis. It was found that the monetary pol-icy rate has a mixed effect on financial inclusion, and the effect depends on the dimension of fi-nancial inclusion examined. Specifically, a high monetary policy rate has a significant negative impact on financial inclusion through a reduction in the number of depositors in commercial banks. A high monetary policy rate also has a significant positive impact on financial inclusion through greater bank branch expansion. The policy implication is that both contractionary and expansionary monetary policies lead to positive improvements in specific indicators of financial inclusion, because increase in interest rate leads to bank branch expansion which is beneficial for financial inclusion and decrease in interest rate leads to increase in the number of depositors in commercial banks which is also beneficial for financial inclusion. It was also found that the rising monetary policy rate has a negative effect on all indicators of financial inclusion in the post-financial crisis period. Overall, the effect of monetary policy on financial inclusion seem to depend on the monetary policy tool used by the monetary authority and the dimension of financial inclusion examined. The monetary authorities should pay attention to how their monetary policy choices might affect the level of financial inclusion and reduce the benefits that society gains from financial inclusion.

Keywords: monetary policy; interest rate; financial inclusion; access to finance; emerging markets (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 G21 (search for similar items in EconPapers)
Date: 2023-06-19
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fle, nep-mac, nep-mon, nep-pay and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Impact of Monetary Policy on Financial Inclusion in Emerging Markets (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:117804

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