Is There Evidence of Rigidity in the Corporate Lending Rate Adjustment Following Repo Rate Changes?
The loan intermediation mark-up set for the corporate sector lending rate is 3 percentage points higher than that of the aggregated lending rate. This evidence indicates a substantially large loan intermediation mark-up pricing policy for the corporate sector. Evidence shows that the corporate sector lending rate responds faster (slower) to repo rate tightening (loosening). This shows that adjustment towards long-run equilibrium is quicker (slower) during contractionary (loosening) monetary policy. This evidence indicates that increases in the repo rate exert a different effect on the corporate sector lending rate compared to decreases of the same magnitude in the repo rate. The asymmetric responses may also be due to the low competition in the banking sector, existence of switching costs and adjustment costs.
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