INTEREST RATES IN INDONESIAN BANKS' ASYMMETRIC BEHAVIOR  AND DEGREE OF PASSTHROUGH

Tohap Parulian; A. Mahendra; Witya Shalini

doi:10.54443/ijset.v2i9.207

INTEREST RATES IN INDONESIAN BANKS' ASYMMETRIC BEHAVIOR AND DEGREE OF PASSTHROUGH

Tohap Parulian

A. Mahendra

Witya Shalini

Interest rate changes result in a trade-off between reducing inflation and capital inflows. Capital inflow will reduce money market interest rates as low as possible, followed by lower lending and deposit rates. On the other hand, it is difficult to lower the benchmark interest rate due to inflation pressure. The asymmetric movement of lending and deposit interest rates to the benchmark interest rate has caused disturbances to the monetary transmission mechanism. The results of the estimated error-correction model for variable lending rates found that the long-term passthrough of Indonesian banks was significant but could have been better on interest rates on working capital loans and investment loans. This study shows an asymmetrical behavior in banking interest rates in Indonesia. The passthrough degree is typically slow when there is a decrease in the benchmark interest rate.

Keywords: Interest rate passthrough, Bank interest rate, Inflation

Agung Juda, Cicilia A. Harun, Elis Deriantino (2021). Kebijakan Makro Prudensial Di Indonesia. Depok : Rajawali Pers.

De Bondt, G. J. (2005). Interest Rate Passthrough: Empirical Results for the Euro Area. German Economic Review, 6(1), 37–78

Ekananda, Mahyus. (2016), Analisis Ekonometrika Time Series. Jakarta: Mitra Wacana Media.

Gigineishvili, N. (2011). Determinants of Interest Rate PassThrough: Do Macroeconomic Conditions and Financial Market Structure Matter? IMF Working Paper, 11-176. International Monetary Fund.

Hendry, D. (1995), Dynamic Econometrics. Oxford: Oxford University Press.

Kuncoro, Haryo. (2020), Ekonomi Moneter, Studi Kasus Indonesia. Ciledug: Bumi Aksara.

Liu, M.-H., Margaritis, D., & Tourani-Rad, A. (2008). Monetary Policy Transparency and Passthrough of Retail Interest Rates. Journal of Banking & Finance, 32(4), 501–511. DOI: http://dx.doi.org/10.1016/j.jbankfin.2007.06.012.

Rocha, M. D. (2012). Interest Rate Passthrough in Portugal: Interactions, Asymmetries and Heterogeneities. Journal of Policy Modeling, 34(1), 64–80.

Rousseas, S. (1985). A Markup Theory of Bank Loan Rates. Journal of Post Keynesian Economics, 8(1), 135–144. DOI:http: //dx.doi.org/10.1080/01603477.1985.11489549.

Taylor, JB. 1995. The Monetary Transmission Mechanism: An Empirical Framework. Journal of Economic Perspective. Vol.09. Number.04.pp:11-26

Warjiyo, Perry (2004). “Mekanisme Transmisi Kebijakan Moneter di Indonesia,” Seri Kebanksentralan No. 11, Mei 2004.

Wibowo, Buddi dan Eduardo Lazuardi (2016). Empirical Evidence of Monetary Policy Transmission Mechanism: Indonesia Banking Sector Interest Rate Passthrough. Jurnal Ekonomi dan Pembangunan Indonesia. Vol. 16 No. 2: 187-204.