The ECB Podcast
The ECB Podcast Summer School #3: the role of banks in fighting inflation
Aug 18, 2023
Banks' role in monetary policy decisions, pass-on of interest rate hikes, impact on loans and savings, effects on the real economy, outlook for European economy and managing demand explored by ECB Chief Economist and host Katie Ranger in the final episode of the Summer School mini-series.
19:22
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Quick takeaways
- Banks play a crucial role in transmitting monetary policy decisions by raising interest rates, which increases the rates at which they can lend from the ECB, creating a floor on lending rates.
- Banks have generally passed on higher interest rates quickly to borrowers, making loans more expensive, but the increase in deposit rates, especially for time deposits, has taken more time and varies across European countries based on competitive pressures and loan demand.
Deep dives
The role of banks in monetary policy transmission
Banks play a crucial role in transmitting monetary policy decisions to the economy through lending and deposit rates. As the ECB raises interest rates, it increases the rates at which banks can deposit money or lend from the ECB, creating a floor on lending rates. However, banks do not charge the same rate as they receive; they add administration costs and risk margins. The connection between the ECB rate and bank loan rates is complex, as banks rely on various sources of funding like deposits and the bond market.
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