Monetary Policy Transmission Through Banking

Abstract

This paper examines monetary policy transmission to bank lending and deposit rates in Eswatini under a pegged exchange rate regime. Using local projections, it finds that pass-through is driven primarily by the South African Reserve Bank policy rate, while changes in the CBE discount rate have limited effects on deposit rates. A monetary easing relative to South Africa is associated with higher lending rates over a one-year horizon, partly offsetting the intended easing effect. This may reflect banks adjusting lending spreads to compensate for basis risk, preserve interest margins, and maintain returns relative to risk-free alternatives.