IMF Working Papers

Monetary Policy Transmission to Lending Rates: Evidence from Brazil

By Daniel Leigh, Rui Xu

July 25, 2025

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Format: Chicago

Daniel Leigh, and Rui Xu. "Monetary Policy Transmission to Lending Rates: Evidence from Brazil", IMF Working Papers 2025, 152 (2025), accessed July 31, 2025, https://doi.org/10.5089/9798229019002.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper estimates the strength of monetary policy transmission to bank lending rates in Brazil. We identify monetary policy shocks using forecast errors from Brazi’s daily Focus survey of professional forecasters. We then estimate the pass-through to lending rates based on an instrumental variable application of local projections and find an aggregate pass-through of 70 percent after four months, reflecting full passthrough to market-based lending rates and 20 percent to government-directed credit interest rates. Analysis using bank-level data reveals varying degrees of pass-through across credit types, from 40 percent for payrollbacked loans to 80 percent for working capital loans, and stronger pass-through for larger banks. Estimated pass-through has increased since 2020 due to more responsive corporate loans

Subject: Bank credit, Central bank policy rate, Consumer credit, Consumer loans, Credit, Credit ratings, Directed credit, Econometric analysis, Estimation techniques, Financial institutions, Financial markets, Financial services, Loans, Money, Securities markets

Keywords: Africa, Bank credit, Bank lending rates, Brazil, Central America, Central bank policy rate, Consumer credit, Consumer loans, Credit, Credit ratings, Credit types, Directed credit, Estimation techniques, Europe, Global, IMF lending, Interest rate ceilings, Interest rate pass-through, Loans, Post-pandemic, Securities markets

Publication Details

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