Spain | Monetary policy pass-through in the loosening cycle

Summary

Spanish banks are rapidly translating the reduction in official interest rates to new lending operations' interest rates, which benefits borrowers. In the case of deposits, the transmission is slightly slower than in the hiking cycle, which benefits depositors.

Key points

• Key points:
• Transmission of monetary policy in the loosening cycle: fast in credit interest rates.
• In the hiking cycle, the Beta of synthetic new credit rates rose to 82%, and in the current loosening cycle is 94%.
• In the recent hiking cycle, the monetary policy pass-through was weaker than in the 1999 and 2005 cycles.
• In the 7 months of the current loosening cycle, the pass-through is faster than in the prior loosening cycles of 2001 and 2008.
• In conclusion, the Spanish banking sector is very competitive as it was able to cushion the increase in households interest rates in the tightening cycle while the pass-through in the loosening cycle is more intense..

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