Abstract:
This study estimates the impact of monetary policy on lending and
deposit rates in Pakistan, using bank data for the period November 2001 to
March 2011. We find evidence of a long-run relationship between the lending
and discount rate, but the deposit rate is not co-integrated, and the pass-through
is not complete. The study finds that, overall, banks pass on only 20 percent of
the impact of a change in the discount rate to lenders in the first month. There is
also a significant difference among various banks’ pass-through rates. A shortrun
analysis reveals that the pass-through of the deposit rate is low at 0.16,
which implies that the effectiveness of monetary policy is limited in Pakistan
