Asymmetry of the Interest Rate Pass-through in Zambia

This study undertook to investigate interest rate pass-through in Zambia with a focus on unravelling evidence on the asymmetric response of retail and bond yield rates to monetary policy controlled rates. The study utilise a non-linear ARDL model to investigate the relationship between policy-controlled rates and retail rates as well as bond yield rates. Based on the single-equation error correction model and the associated dynamic multipliers, the study is able to model asymmetries in both the long-run relationship and the pattern of dynamic adjustment simultaneously and in a coherent manner. In addition, the study present results from a symmetrical ARDL model. Results from the study support evidence to the existence of asymmetry in the response of retail and bond yield rates to changes in policy-controlled interest rates (interbank and 3-month rate). Specifically, there is a negative asymmetry in the response of deposit rates to changes in the interbank and 3-month rates while there is a positive asymmetry with regard to lending and bond yield rates.