The Pass-Through of Monetary Policy Rate to Lending Rates: The Role of Macro-financial Factors

This paper assesses how changes in the monetary policy rate transmit to the lending rates for the consumer, mortgage, SME, and corporate loans in the Czech Republic. It further examines whether this interest rate pass-through is stable or could vary at different levels of bank competition, leverage, non-performing loans, and foreign exchange (FX) interventions. Using the ARDL modelling approach, we find a significant and complete pass-through for SME lending rates. Significant structural shifts are estimated in the pass-through for mortgage and corporate rates. These shifts can be entirely or largely explained by bank deleveraging. We do not find any stable pass through for consumer lending rates. A greater spread between government bond and monetary policy rates increases the markup for all lending rates but corporate rates. FX interventions affected most the markups for corporate and SME rates; however, in a puzzling direction.