The pass-through effect of the Reserve Bank of Australia's cash rate on deposit and lending rates
| dc.contributor.author | Valadkhani, Abbas | |
| dc.contributor.author | O'Mahony, Barry | |
| dc.date.accessioned | 2025-09-09T07:45:24Z | |
| dc.date.available | 2025-09-09T07:45:24Z | |
| dc.date.issued | 2024 | |
| dc.description | Australian households are now among the most indebted within OECD countries, with significant levels of debt gearing and service (Valadkhani and Worthington, 2014). Consequently, changes in lending and deposit rates can affect many mortgage holders, small businesses, and retirees who rely on interest income. The Reserve Bank of Australia (RBA) can influence lending and deposit interest rates by setting the desired policy interest rate on overnight loans in the money market, impacting the yield curve over time. Smales’ (2012) study on the Australian interest rate futures market revealed asymmetric reactions, particularly at the short end of the yield curve. Numerous studies in the literature argue that when the central bank raises the policy rate, lending rates shoot up like a rocket, but when the opposite occurs, lending rates fall like feathers (e.g., Hannan and Berger, 1991). In Australia, similar asymmetric responses have been observed across various lending rates, including mortgage rates (see inter alia, Lowe, 1995; Lowe and Rohling, 1992; Valadkhani and Bollen, 2013; Valadkhani, 2013; Valadkhani and Worthington, 2014) and small business loan rates (Valadkhani et al., 2014). | |
| dc.description.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 | |
| dc.identifier.citation | Valadkhani, A., & O'Mahony, B. (2024). The pass-through effect of the Reserve Bank of Australia's cash rate on deposit and lending rates. Finance Research Letters, 70, 106329. | |
| dc.identifier.doi | https://doi.org/10.1016/j.frl.2024.106329 | |
| dc.identifier.uri | https://repository.adu.ac.ae/handle/1/7411 | |
| dc.language.iso | en | |
| dc.publisher | Elsevier Ltd | |
| dc.title | The pass-through effect of the Reserve Bank of Australia's cash rate on deposit and lending rates | |
| dc.type | Article |