Time Deposit Rate Research Articles

The Effect of Real Rates, Inflation, and the Risk Premium on Time Deposit Rates in Pakistan

The Effect of Real Rates, Inflation, and the Risk Premium on Time Deposit Rates in Pakistan

Interest rate spread determinant based on the interdependency relationship between a bank’s loan rate and time deposit rate

This study analyzes the factors responsible for the lower net interest rate at commercial banks located in Indonesia, Thailand and the Philippines. Data were collected from 35, 10 and 13 commercial banks in Indonesia, Thailand, and the Philippines, respectively, from 2012 to 2020 using the Fixed effect model. The Simultaneous Equation Model was used to analyze the macroeconomic factors and banks’ specific characteristics towards Loan and Time Deposit rates. The result showed that macroeconomic factors, such as the inflation rate, significantly affect loan and time deposit rates in these countries. In Indonesia, bank competition should be reduced and banks’ stability should be higher to minimize Net Interest Margin Spread (difference between Loan Rate and Deposit Rate). In the Philippines, banks should increase their capital and liquidity. So, they will be more confident and prudent in lowering their NIM. Thailand’s banking industry has unique characteristics with high monopoly power. The bigger and greater the market share, the larger the interest rate spread on customers. Therefore, regulators in each country need to consider these important variables when making decisions on lowering the net interest rates by banks to enhance social welfare.

The relationships between time deposit rates, real rates, inflation and risk premium

PurposeThe purpose of this paper is to investigate the influence of the real interest rates, inflation and risk premium on the time deposit rates of banks in the dual banking system in Malaysia.Design/methodology/approachThe data consists of 1-, 6- and 12-month average time deposit rates of conventional and Islamic banks over the period of January 2000 to June 2017. The cointegration methodologies are used to explore links between the time deposit rates, real rates, inflation and risk premium. The causality tests to test causality linkages between pairs of variables are also applied. The generalised forecast error variance decomposition based on the error correction model is conducted to analyse the impact of variables variation on the deposit rates.FindingsThe results show the presence of two cointegration vectors in the deposit rates, real rates, inflation and risk premium, for both conventional and Islamic bank rates. Causality tests reveal that deposit rates are caused by inflation and risk premium in a one-way causality. The results of variance decomposition highlight the importance of inflation and risk premium in explaining the variations in the bank deposit rates. For the conventional bank, inflation shocks play the most important role in explaining the movements of the deposit rates. In Islamic banks, the major determinant’s largest influence is the risk premium. Between the two bank rates, Islamic bank rates receive more influence from the explanatory variables in the long-run compared to conventional bank rates. The real rates have no noticeable effect on the variance of time deposit rates for both banks.Originality/valueThis study presents new evidence on the relationship between time deposit rates and the three explanatory variables, which are the real interest rates, inflation and risk premium, for both conventional and Islamic banks in Malaysia. The dual banking system allows exploring the similarities and differences between conventional and Islamic banks in Malaysia in terms of the linkages between the variables.

PENGARUH BUNGA DEPOSITO DAN NILAI TUKAR TERHADAP PENDAPATAN PERKAPITA DI INDONESIA (1995-2017)

The purpose of this study is to analyze and assess the magnitude of simultaneously and partially influence of deposit interest and exchange rates to income per capita in Indonesia. This research used secondary data time series for 23 years since 1995 up to 2017. The study method used explanatory research to explain the causal relationship between the variables in a model through hypothesis test. The analyzes employed statistical technique of linear regression with the software E-Views 7 and SPSS-22.The results of the study showed that these variables time deposit rate and xchange rate are simultaneously and partially give significant effects to income percapita in Indonesia period 1995-2017 Keywords : Time deposit rate, Exchange rate, Income per Capita.

Analysis of demand and supply in the Colombian housing market: impacts and influences 2005-2016

PurposeThe purpose of this paper is to provide an estimate of the demand and supply in the housing market in Colombia in a period of high real estate valuation (2005-2016). On the demand side, it evaluates the impact of new housing prices, unemployment, stock market returns, real wages in the retail sector, remittances and mortgage rates. On the supply side, it estimates the influence of the price of new housing, construction costs, time deposit (TD) and mortgage rates. Real estate valuation was analyzed considering foreigners migration and land prices evolution.Design/methodology/approachOrdinary least squares (OLS) was used to estimate housing area with the semilog regression model and also to construct price models. OLS was also used in price models. Since quantities depend on prices and vice versa, a two-stage least squares (2SLS) was implemented.FindingsRising prices in new homes have an “elastic” effect on both demand and even higher effect on supply. Likewise, the real wage index for the retail sector has an elastic effect. On the other hand, the response to interest rates is negative, but statistically significant only on the supply side. Furthermore, the inflow of remittances is “inelastic” and statistically insignificant.Originality/valueHousing can sometimes be a Giffen good, this result challenges the traditional neoclassical model, but it can be explained by investment reasons and “bubble” behavior in the housing market. One last influence is the difference between “temporary” and “permanent” migrations. The latter has a statistically significant and perfectly inelastic effect on the price of new homes.

Competing for Savings: How Important is Creditworthiness During the Crisis?

Interest rates on savings products vary not only across banks, but also across the accounts of individual banks. Building on a unique dataset covering the 2003-2014 period, our results show that time deposit rates reflect more closely the economic environment than bank interest rates on savings accounts do. At bank level, interest rates are significantly negatively related to creditworthiness, especially since the onset of the global financial crisis. With regard to account-specific features, we find that maturity-increasing conditions (i.e., withdrawal fees for savings accounts and product maturity for time deposits) positively influence a product’s interest rate.

The dynamic of bank lending channel: Basel regulatory constraint

This article analyzes the impact of monetary policy on bank behavior under the Basel I regulatory framework using a dynamic model with monopolistic competition. There are two main objectives. First, we theoretically predict the dynamic model of bank lending channels under the Basel I regulatory constraint. Second, we empirically analyze the situation in Malaysia by using panel data on 23 commercial banks in the period of 1999 to 2007 by using General Method of Moments. The empirical results show that market rates on loans and policy rates are important influences on average rates of banks' loans. This has an implication that Malaysian banks have the power to set their own prices on loans as they are influenced by the change in the market rate and policy rate. We also have proven that the previous period of spread risk weighted loans and securities is statistically significant and correlated with the average loan rate, whereas risk weighted securities is also statistically significant and correlated with the average time deposit rate in both periods. This shows that the role of risk-weighted assets under the Basel I is important in influencing the optimal rates on loans and time deposits.

Responses Of Interest Rates In Mexico To U.S. Monetary Policy

<p class="MsoBodyText" style="line-height: normal; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt; mso-bidi-font-style: italic;"><span style="font-family: Times New Roman;">This paper examines potential responses of interest rates in Mexico to the U.S. monetary policy. The regression is cointegrated in that the dependent and independent variables have a long-run stable relationship. The GARCH or ARCH model is applied to estimate regression parameters. The results show that the T-bill rate, the cost of funds rate, and the time-deposit rate in Mexico are significantly affected by the change in the U.S. federal funds rate. In addition, these interest rates are negatively associated with real M2 and real tax revenues and positively affected by the real exchange rate, real government spending, and the expected inflation rate. </span></span></p>

The Influence Of Operational Cost On The Bank’s Profitability And The Welfare Of Its Clients: A Theoretical Approach

This paper deals with the way the rate of operational cost, as a proportion of time deposits, affects the optimal level of a monopolistic bank’s profits as well as the utility of its clients. In particular we prove that the optimal level of banking profits is negatively related to the rate of operational cost, while changes of the latter affect negatively the time deposit rate and positively the lending rate. As a result of these changes in interest rates, the utility of both borrowers and depositors is proved diminished.

PENGARUH TINGKAT BUNGA DEPOSITO DAN RETURN SAHAM TERHADAP VOLUME PENJUALAN SAHAM PERUSAHAAN FARMASI DI BURSA EFEK INDONESIA

The purpose of this research is to know the Time Deposit Rate, Stock Return that influence simultaneously or partially to the Sales Volume in Indonesia Stock Exchange.       The research is causal comparative the data resource that were used from pharmaceuticals aunual report 2005 until 2007 from Indonesia Stock exchange . According to the criteria in this research, the samples are 5 pharmaceuticals  in industrial pharmaceuticals. For analysing the model and testing the research hypotheses, we used multiple linear regression analysis statistic method.         Based on the research result and the hypotheses test, we can conclude as follow : 1)  Time Deposit Rate, and Stock Return influence simultaneausly to the Sales Volume2)  Stock Return influence partially to the Sales Volume while Time Deposit Rate had proved not influence. Keywords : Time Deposit Rate, Stock Return, Sales Volume

MEKANISME SUKU BUNGA SBI SEBAGAI SASARAN OPERASIONAL KEBIJAKAN MONETER DAN VARIABEL MAKROEKONOMI INDONESIA: 1990.1 - 2007.4

Bank Indonesia has applied the Inflation Targeting Framework (ITF) to reach its single-final objective; stabilizing Rupiah reflected in the inflation and its exchange rate. The central bank of Indonesia uses the interest rate as his operational target to achieve the targeted inflation. Regardless of whether Bank Indonesia uses the Certificate of Bank Indonesia (SBI) or the money market rate (PUAB), on empirical ground the targeted inflation is hard to achieve.This paper analyzes the monetary policy of Bank Indonesia and its impact on macroeconomic variables. The application of Differenced Vector Autoregressive (DVAR) method shows that the monetary policy has a direct impact on the time deposit rate and an indirect impact on the exchange rate, money supply, gross domestic product and on consumer’s price index.JEL Classification: C32, E52, E58Keywords: SBI Interest Rate Mechanism, DVAR, IRF, FEVD

Inflation Hedging Characteristics of Real Estate Assets in Hong Kong

In this paper the inflation hedging characteristics of Hong Kong real estate market are examined using 1998-2006 data. Both short-term and long-term methods are used. The short-term method follows Fama and Schwert framework. To separate expected and unexpected inflation rate from nominal inflation rate, it is assumed that expected inflation can be reflected directly from time deposit rate in Hong Kong. For long-term analysis the Cointegration method and Granger Causality test are adopted in the analysis. It is found that real estate assets in Hong Kong are not good hedge against inflation, in both short-term and long-term. Also, different types (commercial, office, residential and industrial) of properties show different inflation hedging characters in different periods.

Demand for Demand Deposits in Nigeria

This paper extends the empirical research strategy adopted for modeling demand for M1 in Nigeria in Teriba (2006a) to one of its two sub-components, demand deposits (DD). All of our findings for M1 stand up for DD, with one important addition: demand deposits respond significantly to foreign interest differentials in both the long run and the short run. Foreign deposits are therefore substitutes to domestic deposits in Nigerian money-holders' portfolio. Again, as with M1, we establish the strong relevance of interest rates in Nigerian DD demand models. The rate of inflation had no place in the long run demand for DD models recovered in this study. The exchange rate or its rate of depreciation also plays no role whatsoever in models. We recover economically sensible, econometrically sound, and policy relevant long run and short run empirical models of the demand for DD in Nigeria. We find that the assumed long run relations hold between DD, total domestic expenditure, its deflator, two domestic interest rates, and a foreign interest differential. We establish that domestic absorption, not gross domestic product, is the relevant measure of transactions in the model for DD in Nigeria. We also confirm that the deflator for domestic absorption, not consumer price index, is the relevant proxy for the general price level in the DD model. We document significant 'own' and 'cross' price effects in the long run relations. The two domestic interest rates that entered the relations were the three-month time deposit rate and the Treasury bill rate. The time deposit rate mimicked the 'own-rate' of money in the equation, while the treasury bills rate captured the domestic 'cross-price effect', representing the domestic opportunity cost of money holding. The foreign interest differential enters the model to capture the foreign cross-price effect, or foreign opportunity cost for money holding. Deletion of any of the two domestic interest rates in the long run models led to loss of the cointegrating relationships. Not only is a meaningful cross rate effect recovered only when the own rate is allowed for, both must be included for cointegration to occur. Deletion of the foreign interest differential similarly led to a loss of the cointegrating relationships. To be valid, therefore, empirical models for DD in Nigeria must not only include two domestic interest rates, as proxies for the own-rate and the opportunity costs, but also one foreign interest differential, to capture the cross border asset substitution effect that is evidently pervasive in Nigeria.

Demand for M1 in Nigeria

This study addresses many of the pitfalls involved in the empirical modeling of M1 demand with data from an economic setting where there is no consensus on the background information for the choice of proxies for the variables suggested by theory. We explore alternative approaches for dealing with these choices and demonstrate the sensitivity of modeling outcomes to the different empirical specifications and the various econometric estimators. Our specification searches with quarterly data (1960I-1995IV) show that some of the approaches in extant literature lead to dead ends and reveal fruitful alternatives. In particular, we establish the strong relevance of interest rates in Nigerian M1 demand models over that period. On the contrary, the rate of inflation, which has been favored over interest-rates by some authors, had no place in the long run demand for M1 models recovered in this study. The exchange rate or its rate of depreciation also plays no role whatsoever in models. No role was found for either foreign interest rates or foreign interest rate differential in the empirical models of the demand for M1 in Nigeria. We recover economically sensible, econometrically sound, and policy relevant long run and short run empirical models of the demand for M1 in Nigeria. We find that the assumed long run relations hold between M1, total domestic expenditure, its deflator and two domestic interest rates. We establish that domestic absorption, not gross domestic product, is the relevant measure of transactions in the model for M1 in Nigeria. We also confirm that the deflator for domestic absorption, not consumer price index, is the relevant proxy for the general price level in the M1 model. We document significant 'own' and 'cross' price effects in the long run relations. The two domestic interest rates that entered the relations were the three-month time deposit rate and the Treasury bill rate. The time deposit rate mimicked the 'own-rate' of money in the equation, while the treasury bills rate captured the domestic 'cross-price effect', representing the domestic opportunity cost of money holding. Deletion of any of the two domestic interest rates in the long run models led to loss of the cointegrating relationships. Not only is a meaningful cross rate effect recovered only when the own rate is allowed for, both must be included for cointegration to occur. To be valid, empirical models for M1 in Nigeria must include at least two domestic interest rates, as proxies for the own-rate and the opportunity costs.

Bank Time Deposit Rates and Market Discipline in Poland: The Impact of State Ownership and Deposit Insurance Reform

This paper examines the impact of ownership structure and changes in the deposit insurance system on the market for bank time deposits in Poland. In an environment of less restrictive bank supervision and a deposit insurance policy that favored state banks, we find that depositors exacted a price for risk-taking. After a new law increasing insurance coverage for private banks went into effect, however, bank specific variables became less important in explaining differences in deposit interest rates. We report, however, that the three fully guaranteed state banks pay significantly lower rates than private banks. Moreover, other state-owned banks, with the same explicit guarantee as private banks, pay significantly lower rates than private banks, so it appears that depositors treat these state-owned banks as if they have a larger implicit guarantee.

Financial deregulation and segmented capital markets: The case of Korea

This paper deals with the relation between the official and the unregulated (or curb) segments of the capital market in Korea. The paper focuses on the behavior of officially controlled interest rates paid on time deposits and on freely determined curb market interest rates. The effects of financial deregulation on interest rates, investment and growth are investigated. It is argued that under some (plausible) circumstances financial deregulation can generate significant crowding out in the curb market, reducing the total degree of financial intermediation. The empirical results provide some support to the crowding-out hypothesis, and indicate that changes in the officially controlled time deposit rate have been positively related to changes in the freely determined curb market interest rate. An aggregate investment function is also estimated for Korea. It is found that an increase (decrease) in the curb rate discourages (encourages) investment; on the other hand, increases in the real volume of credit intermediate in the official segment have a positive effect on real aggregate investment.

Macro-economic effects of changes in bank interest rates: Simulation results for South Korea

We use an empirical macro-econometric model of Korea to simulate the impact of bank interest rate changes. This model includes a very detailed sub-model of the financial sector, plus in addition to the usual demand side transmission channels of monetary policy a link between the financial sector and the supply side of the ‘real part’ of the economy via the cost of financing working capital (‘Cavallo’-effect). Increases in Time Deposit rate are shown to be contractionary in the short run, because the portfolio shifts they trigger tighten credit conditions and cause higher costs of financing working capital; people shift out of the curbmarket rather than out of cash. The higher cost of financing working capital also pushes up inflation in the first quarter after the change, making the increase in TD rates stagflationary. This effect dies out quickly, however. The persistence of the loss in output is shown to depend on whether the commercial banks are allowed to play their intermediary role or not: if credit limits prevent the passing through into bank loans of the influx of time deposits caused by the higher rates, substantial and persistent real output losses and decreased private investment were shown to result.

Interest rate management in LDC's

The McKinnon argument that higher Time Deposit rates raise output and lower inflation in the short run and increase medium-term growth by raising the savings rate are shown to depered crucially on the assumption that portfolio shifts into TD's come out of an asset providing less intermediation than the banking system. We show that if instead the shift is out of an asset providing more intermediation (e.g., loans on a curbmarket), raising TD rates is contractionary in the short run, may have negative impacts on growth and can lead to more rather than less inflation in the short run.

The Demand for Money and the Term Structure of Interest Rates in Pakistan

Using the term structure of interest rates, and treating measured income as a scale variable, the paper analyses the demand for money in Pakistan. It is found that replacement of simple average interest rate by the term structure of time deposit rates improves the estimates of money demand function. Money demand is found to be sensitive to changes in interest rates and income level. Furthermore, diseconomies of scale are observed in money holdings.

The Determination of the Belgian Time Deposit Rates, 1963-1977

Changes in monetary policy instruments are transmitted to the real sector through different channels. For Keynesian as well as for monetarists interest rates are very important; time deposits rates are therefore crucial variables. In econometric model building the formulation of the time deposit rate equations need special attention, not only because these rates affect the behavior of the private sector but also because institutional features such as e.g. ceilings on rates, can be important.