Interest Rate Pass-Through in Malawi: Implications for Effectiveness of Monetary Policy

Austin Chiumia and Arnold Palamuleni

Working Papers from African Economic Research Consortium

Abstract: This study investigated the interest rate pass-through and its implications for monetary policy effectiveness in Malawi. Using the cost-of-funds approach and monthly data from 2009 to 2015, an autoregressive distributed lag model was estimated. Results suggest that the structure of the banking industry (banking environment) matters. Also, market power is important in understanding the resulting variation in the savings and lending rates across banks in the market as well as the transmission of monetary policy impulses. Overall, our findings suggest that short-term rates as operating target are consistent with inflation targeting as a monetary policy objective.

Date: 2021-04-19
Note: African Economic Research Consortium
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