Interest rate spread determination in an error （利率决定传播的一个错误）.pdf

Interest rate spread determination in an error correction model a b* c a, Seetaram Navneet , Seetanah Boopen , Rojid Sawkut , Ramessur Shalini and Seetanah Bineshd u University of Technology, Mauritius, Pointes aux Sables, Mauritius b University of Mauritius, Reduit Mauritius cThe World Bank dRoy al Melbourne Institute of Technology * Corresponding author. Tel.:+230 454 1041 E-mail address:b.seetanah@uom.ac.mu Abstract Using time series data over the p eriod 1975-2006, this study investigates the determinants of interest rate sp reads in Mauritius using a cointegration and error correction model. Results f rom the study show that, at the micro level, banks sustain a widening sp read when the p rof it margin is threatened by increased op erating costs. Rising credit risk due to distress borrowing are also associated higher risk p remiums on banks lending rates. Increase in non-interest bearing reserve requirements are observed to result in a widening of banking sp read as banks f ace reduced liquidity . A t the macro level, it is observed that banks tend to p rof it in infl ationary environment as the sp reads widen with banks charging higher risk p remium. Reducing op erating costs, fi nancial taxation and inf lation and imp roving loan quality and liquidity are key issues in an attemp t to narrow the banking interest rate sp read. 1 I. Introduction Over the past two decades,