The pass-through of policy interest rate movements to bank interest rates in Latin America

Rationale This article reviews the empirical evidence on the pass-through of changes in the policy interest rates of the region’s central banks to bank interest rates (distinguishing between consumer, corporate and mortgage loans, and deposits), using two complementary approaches: one with aggregate data and one with bank-level data. Takeaways •In the five largest inflation-targeting Latin American economies, the pass-through of policy interest rates to bank interest rates in recent years appears to be in line with historical experience, based on both aggregate data and bank-level data. •The pass-through of policy interest rates to consumer credit rates (100%) is higher than that for corporate loans (80%) and that for mortgages (20%), while the pass-through to deposit rates is 90%. However, it is heterogeneous by country and segment. •The pass-through of monetary policy to bank lending interest rates is symmetrical throughout the cycle, while the pass-through to deposit interest rates is slightly lower during periods of interest rate cuts.