Proceedings of the 3rd Economics and Business International Conference, EBIC 2022, 22 September 2022, Medan, North Sumatera, Indonesia

Research Article

The Degree of Pass Through and Asymmetric Behavior of Indonesian Banking Interest Rates

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  • @INPROCEEDINGS{10.4108/eai.22-9-2022.2337406,
        author={Tohap  Parulian and Sirojuzilam  Sirojuzilam and Dede  Ruslan and Irsad  Lubis},
        title={The Degree of Pass Through and Asymmetric Behavior of Indonesian Banking Interest Rates},
        proceedings={Proceedings of the 3rd Economics and Business International Conference, EBIC 2022, 22 September 2022, Medan, North Sumatera, Indonesia},
        publisher={EAI},
        proceedings_a={EBIC},
        year={2024},
        month={4},
        keywords={interest rate pass-through bank interest rate inflation},
        doi={10.4108/eai.22-9-2022.2337406}
    }
    
  • Tohap Parulian
    Sirojuzilam Sirojuzilam
    Dede Ruslan
    Irsad Lubis
    Year: 2024
    The Degree of Pass Through and Asymmetric Behavior of Indonesian Banking Interest Rates
    EBIC
    EAI
    DOI: 10.4108/eai.22-9-2022.2337406
Tohap Parulian1,*, Sirojuzilam Sirojuzilam1, Dede Ruslan2, Irsad Lubis1
  • 1: Universitas Sumatera Utara
  • 2: Universitas Negeri Medan
*Contact email: tparuliansihombing@gmail.com

Abstract

There is a trade off in interest rate movements due to capital inflows and the aim of controlling inflation. 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 pressure on inflation. 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 pass-through of Indonesian banks was significant, but not perfect on interest rates on working capital loans and investment loans. This study shows that there is an asymmetrical behavior in banking interest rates in Indonesia. The pass-through degree is typical of being slow when there is a decrease in the benchmark interest rate.