Interest rate pass-through, financial structure and monetary policy in South Africa

This paper investigates the pass-through of the official interest rate to market interest rates in South Africa, using symmetric and asymmetric error correction modelling techniques and monthly interest rates data for the period 1980 to 2007. The study found that the speed of adjustment of market interest rates is high, but differs across the rates. The highest speed occurs in the lending rate, followed by Treasury bill rate, money market rate and commercial bank deposit rate, while government bond yield shows the least speed. A test of commercial bank interest rates confirms asymmetric adjustment. Commercial banks are becoming increasingly competitive in the credit market, while the converse is true for the deposit market, where collusive behaviour among banks is evident.