The purpose of this research project was to assess the impact of interest rates on economic growth in Rwanda from 1998 to 2020. In conducting this research, three objectives were to determine the factors that influence interest rate on Rwandan economy, to assess the level of economic growth in Rwanda from 1998 to 2020, and to assess the relationship between interest rates on economic growth in Rwanda from 1998 to 2020. To achieve these objectives, literature were reviewed on the subject matter, and then data was collected with annually reports published by BNR, NISR and MINECOFIN through inflation rate, GDP and Interest rate. Documentation review was used as a tool for data collection.
TABLE OF CONTENTS
ABSTRACT
TABLE OF CONTENTS
CHAPTER ONE GENERAL INTRODUCTION
1.0. Introduction
1.1. Background to the study
1.2. Statement of the problem
1.3. Objectives of the study
1.3.1. General objective
1.3.2. Specific objectives
1.4. Research questions
1.5. Scope of the study
1.5.1 Content scope
1.5.2 Geographical scope
1.5.3. Scope in time
CHAPTER TWO LITERATURE REVIEW
2.0. Introduction
2.1. Conceptual review
2.2. Empirical review
2.2.1. Factors affect interest rate
2.2.1.1. Inflation rate
2.2.1.2. Exchange rate
2.2.1.3. Deposit interest rate
2.2.2. Economic growth
2.2.2.1. National output
2.2.2.2. National income
2.3. Relationship between interest rates and economic growth
2.4. Theoretical Framework
2.4.1. Keynesian theory
2.4.2. Monetarism Theory
2.4.3. Neoclassical Theory of Economic Growth
2.5. Conceptual framework
2.6. Critical review
2.7. Research gap identification
CHAPTER THREE RESEARCH METHODOLOGY
3.0. Introduction
3.1. Research design
3.2. Target population
3.3. Sources of data
3.4. Data collection instrument
3.5. Data collection procedure
3.6. Data processing
3.7. Data analysis
CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1. Introduction
4.2. Data presentation and interpretation
4.2.1.1. Stationary/unit root test
4.2.2. Exchange rate and economic growth
4.2.3. Deposit interest rate.
CHAPTER FIVE SUMMARY OF MAJOR FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1. Introduction
5.2. Summary of major findings
5.2.1. To determine the factors that influences interest rate on Rwandan economy
5.2.2. To assess the level of economic growth in Rwanda from 1998 to 2020
5.2.3. To assess the relationship between interest rates on economic growth in Rwanda from 1998 to 2020
5.3. Conclusion
5.4. Recommendations
REFERENCES
ABSTRACT
The purpose of this research project was to assess the impact of interest rates on economic growth in Rwanda from 1998 to 2020. In conducting this research, three objectives were to determine the factors that influence interest rate on Rwandan economy, to assess the level of economic growth in Rwanda from 1998 to 2020, and to assess the relationship between interest rates on economic growth in Rwanda from 1998 to 2020. To achieve these objectives, literature were reviewed on the subject matter, and then data was collected with annually reports published by BNR, NISR and MINECOFIN through inflation rate, GDP and Interest rate. Documentation review was used as a tool for data collection. Results indicated that an inflation rate affects negatively the economic growth by considering the long term period at -1.843799 while in short term inflation may influence positively the GDP of our country at 0.657141. Therefore, inflation is occurring, leading to higher prices for basic necessities such as food; it can have a negative impact on society however Rwandan Government uses wage and price controls to fight inflation, even these policies that cause recession and job losses. Moreover, exchange rate may affects Rwanda GDP positively when the country exports more imports products and the data showed that exchange rate of Rwanda equalized to -0.005858 from stationary test level (1). Furthermore, inflation rate and exchange rate affects positively the economic growth in short time while deposit interest rate may be negatively to the Rwandan economy in long term. Economic growth has been both high increased and slowly decreased from 1998 up to 2020 and this was caused by good economic policiesthrough greater policies undertaken including monetary (interest rates controlling) and fiscal policies improvement that are both stimulate the country’s economy. We may say that interest rate factors has been stabilized smoothly by Central Bank through inflation rate controlling, exchange rate stabilizing and deposit interest rate accumulation influences positively GDP per capita. The researcher in line with the findings and objectives of the study made the following suggestion thatRwandan Government should continue to pay heed to the interest rate while devising their economic policies. They should attempt increasing per capita income, inflation (but keep in check to maintain a healthy level of inflation), and the interest rate but lower national expenditure in order to increase saving.
Key concepts: Interest rates, Economic growth.
CHAPTER ONE GENERAL INTRODUCTION
1.0. Introduction
This chapter presents the background to the study, the statement of the problem, the objectives of the study, the research questions, the scope and significance of the study, and lastly the limitations of the study.
1.1. Background to the study
Over the world the debate over the precise effects of interest rate on economic growth remains an unfinished business. Existing research shows vast variations in the use of interest rate as a policy tool for reviving economic growth. On the one hand, research has shown that decreasing the interest rate due to expansionary monetary policy may revive the economy because of increased economic activities (Jelilov, 2016), thereby creating a positive and statistically significant impact on economic growth (Campos, 2012). On the other hand, slow economic growth which may be due to a tight monetary policy via a relatively high interest rate regime can lead to a fall in the economic growth (Foo, 2009), which may be due to the negative and statistically significant impact of interest rate (Udoka, 2012).
The global financial crisis of 2008/2009 has re-ignited the debate around the growth effects of financial reforms. Authorities worldwide have reduced interest rates to low levels in an attempt to boost aggregate demand and economic growth. Lower interest rates are also purported to increase investment levels by reducing borrowing costs. The recovery from the global financial crisis has been slow despite the lowering of interest rates as investments and economic growth rates continue to be at low levels in most parts of the world. According to the advocates of the Austrian school, like Kates (2010) and Templeman (2012), maintaining low interest rates during a crisis slows the recovery process.
Shaw (1973) argued that financial reforms promote economic growth by encouraging savings and investments. Therefore, policies that keep interest rates at artificially low levels may have a negative impact on savings and investments which are one of the major determinants of long-term economic growth as suggested by growth models of Harrod (1948), Domar (1948), Solow (1956), Swan (1956) and Romer (1986). Critics of the financial liberalisation hypothesis suggest that savings may not be responsive to higher interest rates and the rise in borrowing costs caused by interest rate reforms have a negative effect on investments (Warman & Thirwall, 1994).
Romero-Á vila (2009) concluded that the growth effects of interest rate liberalisation are 0.3% per year in EU-15 countries. Shrestha and Chowdhury (2007), Kargbo (2010) and Mottelle and Masenyetse (2012) found evidence supporting the McKinnon and Shaw hypothesis in Nepal, Sierra Leone and Lesotho respectively. Bouzid (2012) found that McKinnon’s complementary hypothesis holds for Algeria and not Morocco and Tunisia. Boadi, Li and Lartey (2015) and Opoku and Ackah (2015) found that savings are responsive to interest rates in Ghana in both the short-run and the long-run. In contrast, Owusu and Odhiambo (2015) concluded that financial reforms have an insignificant impact on economic growth in Ghana; however, capital accumulation is positively associated with economic growth.
Orji, Ogbuabor and Anthony-Orji (2015) as well as Obamuyi and Olaeranfemi (2011) concluded that financial reforms including interest rate liberalisation have a positive impact on economic growth in Nigeria. However, Obamuyi and Olaeranfemi (2011) suggest that savings have a negative impact on growth, implying that the positive influence of interest rate liberalisation on growth is through another channel. Orji, Eigbirenmolen and Ogbuabor (2014) found that the real interest rate and savings have a positive impact on investments in Nigeria. Hye & Wizarat (2013) reported that the real interest rate together with financial liberalization have a negative effect on economic growth in a study of the effect of financial liberalization on economic growth in Pakistan. The results also suggest that investments have a positive effect on economic growth.
In Rwandan economy, growth was mainly in services (7.6%) and industry (18.1%), particularly construction (30%). Investment drove growth, led by public investment in basic services and infrastructure. Real GDP per capita increased 6.1% in 2019. Inflation moved up slightly to 1.6% in 2019, driven by increased domestic demand. Since inflation was below the 5% target, the National Bank of Rwanda (BNR, 2019) reduced the monetary policy rate by 50 basis points to 5% in May 2019, stimulating bank lending to the private sector. Domestic credit to the private sector increased by 0.9 percentage point to 21.1% of GDP in 2019.
1.2. Statement of the problem
Rwanda has been putting a lot of efforts in improving and sustaining its economic growth after the historical experience of Genocide of Tutsi in 1994. A lot of strategies and policies have put in place and have positively impacted the economic growth of Rwanda. The positive changes have been done in terms of political, technological, and economical sectors for the citizens. This has lead the country of Rwanda to be ranked by the World Bank as among top 3rdeasiest economy to do business with in Sub-Saharan Africa, and in overall performance it comes to the 1st place compared to partner states in EAC. Nevertheless Rwanda is still among the poorest countries when compared to some of the same partners in EAC. Although GDP per capita and government revenues as a proportion of GDP have increased, Rwanda remains dependent on Overseas Development Assistance for about 50% of its annual budget and the country’s main goods are imported from its neighboring member countries of EAC and from other parts of the world. Interest rate is expected to have either a positive or negative impact on the economic growth. Thus decreasing the interest rate due to expansionary monetary policy may stimulate the economy because of increased economic activities. On the other hand, slow economic growth which may be due to a tight monetary policy via a relatively high interest rate regime can lead to a fall in the economic growth (Foozor; 2009).
The main problem of investment is to preserve the interest of the policyholders. The insurer keeps the money of the policyholders as trust money. The monetary policy is one of the least understood economic processes but yet the successful conduct of monetary policy requires a clear understanding of the process by which changes in monetary policy affect the economy. Changes in monetary policy are “propagated” throughout the economy via a transmission mechanism, commonly called the monetary policy transmission mechanism. To maintain the trusteeship it is essential that the fund must be invested in such securities that are safe and secured. The payment of the claim amount is the second problem of the life insurer (Gaelle N., 2013).
The empirical results indicate that the capability of monetary policy in Rwanda to influence economic activity and inflation is still limited as in other developing countries, with low levels of economic monetization. The monetary aggregate channel is important in monetary policy transmission mechanism in Rwanda. There is also some evidence of a pass through, but not very important. This means that the exchange rate channel has a limited impact on price. In developing countries, the lack of a capable financial system hampers this channel. However, for a variety of reasons, the link between monetary policy instruments and aggregate demand, the monetary transmission mechanism may be significantly weaker in low-income countries like Rwanda than it is in advanced and emerging economies. Assessing the empirical effectiveness of interest rate on economic growth in Rwanda is therefore an important topic for research.
1.3. Objectives of the study
Objectives of the study were categorized by general and specific objectives as shown below:
1.3.1. General objective
The main purpose of the research is to assess the impact of interest rates on economic growth in Rwanda from 1998 to 2020.
1.3.2. Specific objectives
To determine the factors that influence interest rate on Rwandan economy, To assess the level of economic growth in Rwanda from 1998 to 2020, To assess the relationship between interest rates on economic growth in Rwanda from 1998 to 2020.
1.4. Research questions
What are the factors that influence interest rate on Rwandan economy?
What is the level of economic growth in Rwanda from 1998 to 2020?
Does any relationship between interest rates on economic growth in Rwanda from 1998 to 2020?
1.5. Scope of the study
In order to ensure that the research remains focusing on its original purpose, it is divided into content, geography and time.
1.5.1 Content scope
The research was focusing on interest rates and economic growth as main domains of the study.
1.5.2 Geographical scope
The information of this study was collected from the data published by National Bank of Rwanda (BNR) and Ministry of Finance and economic planning (MINECOFIN).
1.5.3. Scope in time
This study was limited in period of twenty-three years means from 1998 up to 2020.
CHAPTER TWO LITERATURE REVIEW
2.0. Introduction
The chapter focuses and reviews the related literature through the understanding the impact of interest rates on economic growth in Rwanda from 1998 to 2020. It reviews how different books, reports and how different writers understand what the interest rate means. Through this chapter we had a look on the theories and types of factors influencing the raise of interest rate, importance of economic growth, relationship between interest rate and economic growth; lastly study had a critical review and research gap of the study.
2.1. Conceptual review
Caballero (1994) states that an interest rate hike, on the one hand, has an adverse effect on output because of growth in the cost of borrowing, and, on the other hand, it has a positive effect on output because of increasing investment activity in the current period, with economic agents expecting further growth of interest rates and, therefore, of costs associated with putting off the investment decision. In addition, open economy models (Wickens, 2008) discover the mechanisms by which the interest rate can affect output; in particular, an interest rate growth leads to local currency appreciation which on the one hand boosts import volumes for intermediate products (materials and means of production, i.e., capital investment) and output, while on the other hand it is a factor that deteriorates the competitiveness of locally manufactured products and, therefore, of net exports and output (the consumption channel). The open economy models thus show that the interest rate has a mixed effect on economic growth.
2.2. Empirical review
Through the use of descriptive and analytical research design, Nduwayo (2015) sought to analyze the impact of loan management on Kigali Bank’s financial performance from 2010 to 2013. The study used 25 employees working in credit department as its population. It was revealed that loan management and financial performance in Kigali Banks has a significant close relationship. Credit quality, credit sufficiency, documentation of collateral and compliance with laws were also concluded as factors that were considered in loan management. As a recommendation the employees were required to be trained so as to improve performance of the loan.
Bhattarai (2015) investigated the determinants of lending rate of Nepalese commercial banks. The study analyzed six commercial banks from 2010-2015 using multiple regression models. It was established that profitability, operating cost to total asset and default risk have positive relationship to commercial banks while the deposit rate had no significant effect on lending interest rates. From this study: lending rates should be maintained at a prudent level, the management practices need to be improved and government needs to provide the necessary support to both lenders and borrows several recommendations were made.
Kar and Swain (2014) carried out a study in 71 countries whereby 379 Money Flow Index (MFI) were investigated to determine if the high interest rates charged increase profitability, decrease repayment rates and if it leads to mission drift. The study was conducted in a period of6 years i.e. from 2003 to 2008. It was concluded from the study that the yield on loan portfolio, Monetary Fund International (MFI) financial performance and loan repayment rates have significant. The loan delivery method was found to have a significant impact on financial performance. It was also proven that the individual-based lenders were seen to be highly likely to mission drift compared to village banks.
The impact of bank lending rate on the performance was examined by Okoye and Onyekachi (2013). This study was conducted from 2000 to 2010 involving the Nigerian Deposit Money Banks (DMB). Combination of several regression analyses was utilized. It was concluded that the monetary policy and the lending rate have positive significant impact on Nigeria’s DMB performance. The government should foster policies that result to the Nigerian DMB banks improve in their performance. The lending rate policy need to be strengthened as recommendation provided from the study.
Using explanatory research design and multiple regression model analysis, Wambari and Mwangi (2017) investigated on impact of interest rates on commercial banks’ financial performance the 42 commercial banks in Kenya were used in the study. This study concluded that lending rate ratio has a positive influence on commercial banks performance while deposit interest ratio impacts negatively. Financial performance management and asset quality were concluded as having positive and negative impact on commercial banks performance respectively. As a recommendation from the study, Commercial banks in Kenya need to carefully monitor their deposit and lending interest rates and deposit interest rates. To reduce number of non-performing loans, the study recommended that close monitoring of high risk borrowers through sharing of credit information have a cross reference with credit bureaus.
Interest rate spread increases cost of loans borrowers are charged. The study also found out that regulations had effect on performance govern that is determines interest rates spread in banks. Irungu (2013) analyzed the effect of interest rate spread on the commercial banks performance, according to the study, interest rate spread increases the cost of loans borrower is charged. The study also found out that regulation on interest rates had a significant impact on assets non-performance. As a recommendation from the study, interest rate should be regulated by the government to protect borrowers from commercial banks exploitation.
2.2.1. Factors affect interest rate
With regard to taxation, the taxation of returns on saving and the tax-deductibility of interest payments for investors, create a wedge between conventionally measured real interest rates and effective (after-tax) rates. Furthermore, the influence of taxation is complicated in the sense that, since longer-run saving and investment decisions determine after-tax real rates, any change in the tax wedge will influence observed pre-tax rates. Such distortions are, however, difficult to quantify, typically varying according to factors as diverse as the type of investment, the method of financing, and the status of the investor. In addition, tax treatment has changed over time, affecting the interpretation of long-term trends.
In respect of the empirical analysis presented below, such tax distortions may have been reduced over our selected sample period, i.e. from 1981Q2 to 1994Q2. First, widespread tax reforms in the 1980s with efforts to broaden tax bases and reduce marginal rates have led to a decline in effective marginal tax rates relative to the previous two decades. Second, since tax distortions tend to be exacerbated by interactions with inflation, and with inflation having generally fallen in the 1980s, the wedge between pre and post-tax real interest rates is likely to have declined. The effects of financial regulation also significantly distort interest rate trends and complicate any analysis of their determinants. Financial regulations can alter adjustments in nominal interest rates to ongoing economic developments, as well as the saving and investment propensity of households. Again, however, any possible regulation-bias in the following empirical analysis is limited by the fact that the sample period commences in the early-1980s, predominantly a post-regulation era. The general trend of financial liberalisation in the 1970s and 1980s has subsequently provided markets with a much greater role in the allocation of credit, both widening the access to credit and possibly raising the measured (as opposed to actual) mean and variance of the cost of capital.
2.2.1.1. Inflation rate
Firstly the real balances will be affected. In other words, the higher price level is a cause for lower real supply of money. In Keynesian context of analysis, decreased real money supply distorts whole economy. This means disequilibrium. In the next phase, the supply of bonds is increased. The final result is a lower price for bonds and higher interest rate. So there is a positive causal relationship from inflation rate to nominal interest rate. In other words, increased inflation rate provides some increases in interest rate. The influence mechanism of interest rate on inflation can be explained in various ways. One method is to apply user cost of capital. The increased interest rate raises the user cost of capital (Branson, 1979) that results in higher production costs. This changes raise inflation by shifting the aggregate supply curve to the left side. Also, the changing interest rate impacts on inflation through influencing the money volume. In the endogenous money models which money supply is a function of interest rate, the money supply is increased when interest rate goes up. So, according to quantity theory of money, the more money supply results in inflation in the short- and long-run. Although money supply has not significant effect on inflation in the recession period, however the impact of money supply on inflation is positive and significant in the medium– and long– run in normal conditions. Generally speaking, the relationship between nominal and real interest rates indicates a positive relationship between inflation rate and nominal interest rate. This debate has presented by William Douglas before 1840s. Then, Henry Thornton used this idea for explaining the nominal and real interest rates relationship.
On the other hand, Barsky (1987), Huizinga & Mishkin (1986), Mishkin (1992) and Ghazali (2003) have concluded that there is no strong relationship between interest rate and inflation rate. Lardic & Mignon (2003) have studied the relationship between interest rate and inflation rate in G-7 countries using Engel-Granger co-integration method. According to their study, there is a long-run relationship between interest rate and inflation rate. Berumont et al (1999) concluded that increased inflation uncertainty results in raising the nominal interest rate. Million (2003) has tested long-run relationship between nominal interest rate and inflation rate using U.S. data. He concludes that Federal Reserve reduces the nominal interest rate when inflation rate is high; and it raises nominal interest rate when inflation rate is low. He argues that Federal Reserve authorities follow prices fixing policy and regulate its procedures based on inflation. He finally accepts Fisher theory. Booth and Ciner (2001) have studied the relationship between interest rate and inflation rate using co-integration in 9 European countries and U.S. The conclusion supports the long-run relationship except for one case. Brazoza and Brzezina (2001); and Fave and Auray (2002) have confirmed a relationship between interest rate and inflation rate in the long-run.
A study by Pattnaik and Mitra (2001) indicates that interest rates, inflation rates and exchange rates are all highly correlated. By manipulating interest rates, central banks exert influence over both inflation and exchange rates, and changing interest rates impact inflation and currency values. The real exchange rate is the actual exchange rate adjusted for inflationary effects in the two countries of concern. Another study by Ndung‘u (1997) states that interest rate differential will widen with real exchange rate appreciation, and this will trigger capital inflows. A thesis by Kiptoo (2007) found that the real exchange rate (rer) is obtained by adjusting the nominal exchange rate (ner) with inflation differential between the domestic economy, and foreign trading partner economies. A study by Sifunjo, (2011) further found that the derivation of the rer therefore, requires that the data of the ner, domestic inflation and foreign inflation be obtained. Domestic inflation will rise with exchange rate depreciation, and the influence of foreign inflation will decrease with exchange rate appreciation.
2.2.1.2. Exchange rate
As stated in the Mundell-Fleming model (Mundell, 1962: Fleming, 1962), in the case of fixed exchange rate regime, the central bank sells (and buys) foreign exchange in order to maintain the nominal exchange rate fixed. As a result, country's international reserves decrease or increase, this leads to a decrease (increase) in the money supply. Serrano and Summa (2011)state that the increase (decrease) in money supply decreases (increases) the domestic interest. In the Mundell-Fleming model with floating exchange rates, it is assumed that the exchange rate appreciates when the domestic interest rate is above the international level and vice versa. An increase in interest rate is necessary to stabilize the exchange rate depreciation and to curb the inflationary pressure. However, it is unlikely to accept the changes in interest rate policy to be purely exogenous to stabilize the exchange rates because the monetary authorities in many countries resort to high interest rate policy when the currency is under pressure and low interest rate policy when the currency is in normal levels.
The potential reasons for fluctuations in exchange rates have been highly debated theoretically and empirically in the literature. Dornbusch (1980),Sargent and Wallace (1981) and Branson (1981) present alternative models explaining movements in the nominal exchange rate. In the latter studies, some other factors which lead to exchange rate fluctuations have been examined empirically. Feldstein (1989),Pindyck and Rotemberg (1990),Bergstrand (1991),Clarida and Gali (1994), Glick et al. (1995), Faruqee (1995), Mark and Choi (1997) and Chinn (1999) imply some of these factors as follow; budget deficits, resource endowments, changes in terms of trade and labor productivity differentials.
Interest rates, together with inflation rate, are among the most significant factors affecting exchange rate fluctuations. An increase in the interest rate of the home currency will increase the number of home currency deposits. A higher interest rate means higher rates of return, thus the demand for home currency will increases. These situations lead to an appreciation of home currency relative to foreign currency. In 1986 Federal Reserve Bank of Kansas City made a study to examine the relationship between interest rates and exchange rates in USA form 1974 to 1986. From the analysis, it was observed a negative relationship between exchange rates and interest rates, which came as the result of the inflation shock during this period. On the other hand, during 1980s it was observed a positive correlation between interest rates and dollar price (Hakkio, 1996).
By using Vector Autoregression model Goldfaijn and Baig (1998) conducted a research aiming to find a relationship between real interest rate and real exchange rate. The sample was comprised by data about daily interest rates and exchange rates from July 1997-1998 in Asian countries. The results of the regression model did not show a strong relationship between these two rates. Goldfajn and Gupta (1999) studied the linkage between exchange rates and interest rates in the international area and found that an increase in interest rates will result in an appreciation of nominal exchanges rates. Their study was based on 80 currency crises from 1980 until 1998. On the other hand Furman and Stiglitz (1998) from their study in 9 developing countries during 1992-1998, stated that an increase in interest rates would result in a deprecation of nominal exchange rates. However, this result is more prominent in countries with low inflation than in countries with high inflation.
According to Bleaney (1996) there exists a strong positive correlation between exchange rate and inflation. He stated that the present value of any investment opportunity depends on expected demand, price level and relative prices. Since relative prices movements are not certain this uncertainty effects investment decision as well. In a study of a sample of 41 developing countries from year 1980 until 1990, he found a negative link between exchange rates, real ones and growth, and a direct relationship between exchange rates and inflation. Inflation in home country is one a very important factor that may lead to currency depreciation as stated by Sodersten and Reed (1994). Oriavwote and Eshenake (2012) in a study of the relationship among Real Exchange Rates and Inflation rate in Nigeria, found that exchange rates are very sensitive to changes from of inflation and import. Data for this study corresponded to the period from 1970 to 2010, in the state of Nigeria. In their research they state that governments should not rely on inflation targeting if they want to stabilize exchange rates. As exchange rate fluctuations result mostly by changes in inflation, controlling the exchange rate would be inefficient in case there is inflation. Because of this relationship when deciding on monetary policy both inflation and exchange rates should be considered as interconnected targets (Ahmad & Ali, 1999).
2.2.1.3. Deposit interest rate
Despite such expectations, interest rate setting for many financial services, and particularly deposits, have been viewed as ‘sluggish’, ‘sticky’, or lagged (e.g. Hannan and Berger 1991, De Graeve et al 2007, Fuertes and Heffernan 2009) and characterised by high levels of variance (Ashton and Letza 2002, Martin-Oliver et al 2008), suggesting factors other than cost influence the setting of interest rates. Previously Heffernan (2002) examining intra-bank variation in interest rate setting reported dual peaks of more and less competitive interest rates existed for financial services; an outcome attributed to bank interest rate discrimination between informed and ill-informed customers with inertia.
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