Asymmetric Interest Rate Transmission in an Inflation Targeting Framework: The Case of Colombia

Abstract

After adopting an inflation targeting framework for monetary policy at the turn of the century, the Central Bank of Colombia started actively using the monetary policy interest rate as its key policy tool. In this regard, this paper examines the interest rate pass-through from the monetary policy rate to the retail rates in Colombia and explores asymmetries in the adjustment process within the framework of a non-linear version of the ARDL (NARDL) model developed by Shin et al. (2014). Our findings show that the policy rate plays a key role in determining deposit and lending retail rates but the nature of the pass-through varies across different types of lending products. In the case of lending rates, the pass-through is usually a full one, and takes around 12 months to be nearly complete. Our results capture an asymmetric positive pass-through in deposit rates and an upward rigidity in the lending rates of consumer and ordinary corporate loans, key segments of the credit market. These findings imply that most retail lending rates respond more to policy rate cuts than to hikes, indicating that financial intermediaries are more reluctant to raise interest rates than to decrease them following policy adjustments.

The internationalization of domestic banks and the credit channel of monetary policy

“…The partial transmission of monetary policy to the credit supply coincides with previous evidence for Colombia using bank-level data (Holmes et al, 2015). Galindo and Steiner (2020) use aggregated data on the Colombian banking system and find evidence on a complete transmission of monetary policy rates to loan rates after twelve months. We find a lower from the changes in monetary policy conditions.…”

Determinants of Short- and Long-Term Commercial Lending Rates in Peru, 2010–2022

“…Regarding the evolution of literature on this topic in Latin America, substantial research efforts have been undertaken to identify, in principle, whether there is a complete pass-through on lending and deposit rates (Lahura, 2005 6 ;Chumpitaz, 2007;Rostagno & Castillo, 2010;Galindo & Steiner, 2020), and this relationship has even been reviewed following the global financial crisis (GFC). However, the empirical results were mixed and generally indicated the presence of a rigid and slow pass-through (Betancourt et al, 2008;Chumpitaz, 2007;Cermeño et al, 2015 7 ).…”

“…Although a vast amount of literature has focused on analysing the transmission channel of monetary policy on lending rates in different sectors and terms ( Jobst & Kwapil, 2008;Rostagno & Castillo, 2010 8 ; Galindo & Steiner, 2020), less attention has been paid to the fact that this relationship depends on various market conditions, and not only on the monetary policy stance, especially in countries of the Global South, in Latin America.…”

“…This methodology is particularly suitable for this research for incorporating unit root variables into the model. Several studies on the subject have followed a similar methodological strategy to assess the pass-through effect of the monetary policy rate on lending rates (Cottarelli & Kourelis, 1994;Chumpitaz, 2007;Jobst & Kwapil, 2008;Rostagno & Castillo, 2010;Gambacorta et al, 2015;Kapuscinsky & Stanislawska, 2017;Galindo & Steiner, 2020).…”

El efecto traspaso de la tasa de interés de política monetaria: evidencia reciente para Perú en tiempos de Covid-19

“…La evidencia empírica muestra que tras tomar el régimen MEI (de metas explicitas de inflación) muchos países han coincidido con una mejora de este canal (Galindo y Steiner, 2020;Grigoli y Mota ,2018;Romero et. al.…”