Interest Rate Pass-Through between Money Market Interest Rates and Retail Bank Interest Rates in Selected CEE Countries

The stability of interest rate pass-through is crucial for the management of monetary policy in many countries. It serves as an important indicator of the quality of the transmission mechanism of the central bank and a signal forming the expectations of market participants. The aim of this paper is to analyse, through the application of correlation analysis and monitoring of basic fundamentals, the intensity of the relationship between key central bank interest rates, interbank interest rate IBOR and retail interest rates on deposits and loans in households and businesses in selected CEE countries and in euro area in the period from January 2007 to July 2012. Our results demonstrate, except for the Czech Republic, that the CEE region does not show such a strong interest rate pass-through towards the euro area, on the contrary it indicates dependence within the region itself It cannot be claimed that this region is a completely homogeneous system. According to our results, the weakest transmission of interest rates changes is found in Hungary and Romania.