The pass-through effect of the Reserve Bank of Australia's cash rate on deposit and lending rates

Abstract

Using a multiple-threshold regression model and monthly data (April 1982−July 2024), we analyze the Reserve Bank of Australia's cash rate pass-through effects on lending and deposit rates. For lending rates, pass-through is symmetric when the cash rate is below 4.75 %. However, at certain cash rate levels, mortgage and small business rates shoot up like rockets but fall like feathers. No asymmetry was detected in deposit rates, suggesting a symmetric response to changes in the cash rate. These findings have important implications for regulatory bodies, highlighting specific cash rate levels and corresponding lending or deposit rates that may require closer scrutiny.

Keywords: Mortgage, Small business, Deposit, Interest rate, Cash rate, Asymmetry