Measuring the pass-through of CBRT policy interest rates to bank interest rates during structural breaks

In this study, the pass-through effects of policy interest rates implemented by the Central Bank of the Republic of Turkey (CBRT) on bank loan and deposit interest rates are investigated. The main objective of the study is to analyze the impact of the weighted average of policy interest rates (AOFM) applied by the CBRT on bank loan and deposit rates from January 2011 to June 2024, encompassing periods of stability as well as structural break periods such as currency crises, high inflation, and interest rate hikes. Within the scope of the study, the Toda-Yamamoto causality test is employed for causality analysis, and the Autoregressive Distributed Lag (ARDL) model along with the Error Correction Model (ECM) are utilized to test the direction and degree of pass-through. The analysis results indicate that CBRT policy interest rates have a significant pass-through effect on both deposit and loan interest rates. However, differences in pass-through effectiveness have been observed during periods characterized by structural breaks. To enhance the pass-through of CBRT policy rates to bank interest rates, it is recommended that additional mechanisms be implemented, particularly to increase the sensitivity of deposit rates. The findings of the study are considered beneficial for policymakers and the banking sector.