Policy Transmission Through Banking: Evidence from Namibia

Selected Issues Papers, July 10, 2026

Source details

The pass-through of policy rates to aggregate banking interest rates in Namibia is primarily driven by the South African Reserve Bank policy rate.
Effects of domestic policy rates are weaker and less persistent.
Transmission is asymmetric:
- Lending rates adjust rapidly and completely, reflecting the prevalence of variable-rate contracts and their linkage to prime rate.
- Deposit rates respond more slowly and incompletely, consistent with differences in funding structures and pricing behavior across banks.

The paper uses local projections to quantify the pass-through of domestic and South African policy rates to aggregate banking interest rates in Namibia under a pegged exchange rate regime.

Namibia’s pegged exchange rate regime implies strong influence from South African monetary policy on domestic banking rates.
Rapid and complete adjustment of lending rates suggests borrowing costs for households and firms closely track changes in policy rates linked to prime rate mechanisms.
Slower and incomplete adjustment of deposit rates points to heterogeneity in bank funding structures and pricing behavior, with potential implications for bank margins and savings returns.

Subjects: Central bank policy rate, Deposit rates, Exchange rate arrangements, Financial services, Foreign exchange, Interest rate policy, Monetary policy, Repo rates
Keywords: Africa, bank deposit rates, bank lending rates, Central bank policy rate, deposit rate, Deposit rates, Exchange rate arrangements, Global, IMF country, IMF staff, interest rate pass-through, Interest rate policy, issues paper, Monetary policy, Namibia, pegged exchange rate regime, Repo rates

Source: "Policy Transmission Through Banking: Evidence from Namibia", Selected Issues Papers (2026), by Yumeng Gu.