Pass-through from Danmarks Nationalbank’s interest rates to the banks’ interest rates

Authors Mandsberg, Rasmus Kofoed; Autrup, Søren Lejsgaard; Risbjerg, Lars
Subject Interest and exchange rates; Monetary Policy; Monetary-policy instruments; Monetary-policy transmission
Type Monetary Review  
Year 2016
Published 17 August 2016
Link to publication Monetary Review 2nd Quarter 2016
The article analyses the pass-through from Danmarks Nationalbank’s interest rates to bank deposit and lending rates for households and non-financial corporations. As regards bank lending rates, the pass-through from Danmarks Nationalbank was reduced significantly in connection with the financial crisis in the autumn of 2008, when bank lending rates were slow to follow the sizeable reductions of Danmarks Nationalbank’s interest rates in the following months. The pass-through was relatively quickly restored, however. The banks determine their lending rates on the basis of the costs of funding the loans and the risk on the loans. When bank funding costs are taken into account in the explanation of the pass-through from the rate of interest on certificates of deposit, there is no notable difference in the pass-through to lending rates before and after the financial crisis. The pass-through from Danmarks Nationalbank’s interest rates to bank corporate and household deposit rates has been reduced due to the low level of interest rates. The banks have been hesitant to pass on Danmarks Nationalbank’s negative rate of interest to small firms and especially to households, which have been exempt from negative deposit rates.