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The Bank Lending Channel of Monetary Policy Transmission in South Africa

Author

Listed:
  • Ekaterina Pirozhkova

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Nicola Viegi

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

Abstract

This paper studies the bank lending channel of monetary policy transmission in South Africa in a context where the bank-loan level data, typically used for this type of analysis, are unavailable. Supply-side changes in credit provision are measured with data on composition of homeloan supply by banks versus nonbanks. High-frequency surprises in forward rate agreements are used to instrument for exogenous shifts in monetary policy in a proxy-SVAR model. The bank lending channel is found to be operative, as banks reduce the supply of homeloans following monetary tightening with a negative effect on housing market. The effectiveness of the deposits channel is shown: banks widen the deposit spread after monetary tightening, and the volume of deposits shrinks. As retail deposits provide a unique stable source of funding for banks, the deposits channel underlies the operativeness of the bank lending channel in South Africa consistent with theory.

Suggested Citation

  • Ekaterina Pirozhkova & Nicola Viegi, 2024. "The Bank Lending Channel of Monetary Policy Transmission in South Africa," Working Papers 202443, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202443
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    More about this item

    Keywords

    monetary policy transmission; bank lending channel; credit channel; nonbank financial institutions; housing finance;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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