The heterogeneous impact of monetary levers on the indicators of lending and economic activity

This paper examines the effect of the monetary transmission mechanism in the cross-sectoral context. The transmission mechanism from refinancing rate, liquidity and hryvnia exchange rate against the U.S. dollar to sectoral lending and economic activity was studied using a structural VAR-model. A significant heterogeneity in the response of sectoral indicators was found, which should be taken into account by the National Bank of Ukraine when setting up monetary policy. In particular, the transmission to consumer lending rates differs from the transmission to corporate and interbank lending rates, as well as government lending rates. Consumer credit rates are reduced due to rising liquidity and do not react to refinancing rates. An unexpected decrease in such rates after the devaluation was evidently due to partial realization of the currency risk. The volumes of lending to the population depend only on the hryvnia to the dollar exchange rate. That is, the National Bank has virtually no direct influence on consumer lending. In addition, the change in interest rate channel from the beginning of 2015 was studied using a panel VAR-model. A positive change in monetary transmission during this period was the emergence of an effective interest rate channel, and hence effective transmission of the NBU refinancing rate to the short-term rates on loans in national currency. The pass-through of the weighted average rate on the NBU refinancing operations to short-term bank lending rates is about 30-40% (that is, such rates increase by 0.3-0.4 percentage points in response to 1 percentage point increase in the refinancing rate).