Author(s): Munib Badar*
This study explores long and short-run relationships between monetary policy rate and retail interest rates i.e. lending and deposit rates of commercial banks of Pakistan by using quarterly data from 1998 to 2018. The variables include proxy of central bank monetary policy rate, market retail interest rates. Data are collected from the official websites of the State Bank of Pakistan and tested by econometric techniques. This study convers both the pre and post era of Interest rate Corridor (IRC) implementation. Outcomes of this study confirms that monetary shocks have a significant positive impact on market lending and deposit rates, implying that interest rate pass-through is active in Pakistan. However, the pass-through of monetary policy shocks into market retail rates (lending and deposit rate) is incomplete in the both short and long run. This study incorporated the impact of the interest rate corridor that enhances the pass-through effect of interest rate for both lending and deposit rate in terms of magnitude and speed of adjustment.