Pass-Through Effects of Standing Facilities on Bank Interest Rates in Nigeria

Authors

Victor Ezeora Eleam, Central Bank of NigeriaFollow
Chinyelu Gloria Ekwom, Central Bank of NigeriaFollow
Chibueze Charles Ariolu, Central Bank of NigeriaFollow
Chukwubuzo Jackson Umebali, Central Bank of NigeriaFollow
Adewale Timothy Balogun, Central Bank of NigeriaFollow

Publisher

Central Bank of Nigeria

Keywords

Monetary policy, Interest rates, Standing facilities, Nigeria.

Abstract

The paper investigates the pattern of pass-through effects of standing facilities rates on commercial bank retail interest rates in Nigeria. Monthly data spanning 2007:06 to 2019:12 and the Gregory-Hansen cointegration method that accounts for structural breaks are used in the empirical analysis. The adjustment parameters for the standing deposit and lending facilities are found to be significant, but with a low speed of adjustment. This provides some evidence on the nature of the interest rate channel of monetary policy transmission in the country. Furthermore, the study could not confirm asymmetry in the adjustment of retail rates to their long-run equilibria. Lastly, we find that when the cost of funds rises, following a hike of the upper bound of the policy rate corridor by the CBN, banks tend to cut costs by reducing interest expense rather than raising deposit interest rates to aggressively pursue deposit mobilisation.

Author Bio

The authors are staff of the Statistics Department, Central Bank of Nigeria

Publication Title

CBN Economic and Financial Review

Issue

3

Volume

59

First Page

1

Last Page

25

Recommended Citation

Eleam et al., (2021). Pass-through effects of standing facilities on Bank interest rates in Nigeria. Economic and Financial Review, 59(3), 1-25.