Asymmetric Adjustment in the Singaporean Consumer Loans - Interbank Overnight Rate Spread and Conditional Heterokedasticity

Author:Chu V. Nguyena, Muhammad Mahboob Alib and Samuel Penkarc

Abstract:
Asymmetries in the Singaporean consumer loans lending-interbank overnight rate spread were documented. Empirical results revealed that the spread adjusts to the threshold more slowly when the interbank overnight rates decrease relatively to the consumer loans rates than when the interbank overnight rates move in the opposite direction. Additionally, the empirical findings indicate that Singaporean commercial banks exhibit predatory rate setting behaviour in consumer loans market. The results also show bidirectional Granger causality between the Singaporean consumer loans rate and the interbank overnight rate, indicating that the consumer loans rate and the interbank overnight rate affect each other’s movements. These results suggest that monetary authority can use its counter cyclical monetary policy instruments to achieve its macro-economic objectives. However, the estimated results of the GARCH (3,3)-in-Mean model suggest that they should intervene more frequently and by small policy measures to minimize the conditional variance of the spread to minimize the magnitude of the cycle of the consumer loans rate.

Keywords:Key Words: consumer loans rate; interbank overnight rate; predatory pricing behaviour; Granger causality; countercyclical monetary policy.

DOI:

International Journal of Trade & Commerce (Vol: 4 Issue:1)