A0532
Title: Is the pass-through of the central banks policy rate asymmetric: Evidence from Pakistan's bank-level data
Authors: Syed Zulqernain Hussain - University of Otago (New Zealand) [presenting]
Abstract: A two-step non-linear autoregressive distributed lag (2SNARDL) method is used to test whether the central bank's policy rate pass-through to retail rates of commercial banks operating in Pakistan is symmetric or asymmetric. The effectiveness of monetary policy relies on the response of retail rates to changes in the policy rate. Pakistan is of significant importance to other emerging and developing economies because of several key factors that make it an important reference point. In the 2SNARDL used, an asymmetric long-run relationship is expressed between the retail rate and the positive and negative cumulative partial sum processes of the policy rate. Short-run dynamics are estimated using an Error Correction Model (ECM). The results reveal asymmetric adjustments in both the lending and deposit rates in the long run. All bank categories follow asymmetric adjustments in lending rates. Banks completely adjust (pass-through) their lending rates when the central bank increases its policy rates. However, banks do not adjust their lending rates completely following a decrease in the policy rate. Furthermore, findings underscore the heterogeneity in monetary policy transmission across Pakistan's banking system and emphasize the need for disaggregating the banking sector and for tailored policy measures to enhance the effectiveness of monetary interventions.
