Bank competition and interest rate pass-through in the BRICS

Purpose – The purpose of this paper is to examine and compare the interest rate pass-through among the Brazil, Russia, India, China and South Africa (BRICS) emerging markets. Design/methodology/approach – The paper reviews a general literature on interest rates pass-through by applying a cointegration and asymmetric mean adjustment lag (MAL) error correction methodology (ECM). Findings – A symmetric adjustment is found in Russia, China and South Africa's deposit rate, while an asymmetric adjustment is found in Brazil and India's deposit rate adjustments. The presence of a customer reaction theory is found in Brazil, India, China and South Africa's deposit rate adjustments, while a collusive pricing arrangement is found in Russia. From the lending rate adjustment, a collusive pricing arrangement was found in Brazil, China and South Africa, while a customer reaction theory was found in India and Russia. Research limitations/implications – The sample period used in the study covers a period starting from the formal recognition of BRIC (2001-2010), which limits the data length. Practical implications – The research output and implication can assist monetary policy makers, investors and consumers to monitor BRICS’ central banking, commercial banking and competition behaviour, individually and as a group. The BRICS are potentially heading towards a more financially integrated bloc as multilateral agreements among members increases. This is in the form of Letters of Credit and Memorandum of Understanding. These agreements should boost intra-BRICS financial transactions, investments and trade. Originality/value – This is, to the best of knowledge, the first analysis of BRICS interest rate pass-through using the asymmetric MAL ECM application.