Key rate pass-through to deposit rates: experience from the pandemic era

The unique feature of our data is that it covers three policy rate changes during the pandemic times: a single decrease and a double increase in less than a year. Thus, we are able to observe the unique pass-through effect that occurred during the pandemic times. We monitor the estimated regression coefficient for the local currency dummy (the monetary component for the deposit pricing). Its time evolution represents the pass-through effect of interest. We uniquely discover that the pass-through had an overshooting effect with the mean reversion. However, the double increase in the key rate by the Bank of Russia had no impact on the deposit rates at best, but even more likely it was associated with rates decline. We attribute the found overshooting and the prolonged pass-through to the further rate downgrade expectations. Neither Bloomberg consensus forecasts, nor the money market rates do not demonstrate similar patterns.