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 affect the lending rates for the small and medium enterprise (SME), consumer, mortgage, and corporate loans in the Czech Republic-a high-income, OECD country. It further examines whether such 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 cointegration approach, we find a significant and complete pass-through for SME lending rates. For consumer lending rates, we estimate the pass-through as unreliable. For both the mortgage and corporate rates, the passthrough shows significant structural shifts that can be entirely and largely explained by bank deleveraging. The markup for all lending rates, except for the corporate rates, increases with a growing spread between the government bond and monetary policy rates. FX interventions mostly affect the markups for corporate and SME rates.