The Relationship between Deposit and Lending Rates in Namibia


  • Johannes Peyavali Sheefeni Sheefeni Department of Economics University of Namibia


Deposit interest rate, lending interest rate, linear, symmetric, imperfect competition, mark-up theory, error correction models, Namibia


This paper analyses the relationship between deposit interest rates and lending interest rates in Namibia. The objective is to test whether a linear and symmetric relationship holds for Namibia in the long run. Using monthly data for the period 1992:01 – 2012:12, the paper employed time series techniques, namely, unit root tests, and the cointegration test. The unit root test revealed that the series are non- stationary. The cointegration test showed that there is no cointegration among the variables. Hence, there is no long-run relationship between the deposit interest rate and the lending interest rate in Namibia. The study rejects the hypothesis of a linear and symmetric relationship in the Namibian context. In the absence of cointegration the study could not proceed with the Granger causality test.



Amarasekara, C. (2005). Interest rate pass-through in SriLanka. Staff Studies, 35(1/2), 1-32.

Bellando, R. & Lavigne, A. (1992). Lending rates and deposit rates in Europe : A Granger causality test. Revue économique, 43(2), 383-403.

BON. (1992 -2012). Annual Reports. Windhoek.

BON. (1992 – 2012). Quarterly Bulletins. Windhoek.

Bulus,Y.D. (2010). The Nigeria Inter-Bank and Monetary Policy Rates Nexus: Any Discernable Long-Run Relationship? Economic and Financial Review Volume, 48(2), 1-34.

Breitung, J. (2001). Rank tests for nonlinear cointegration. Journal for Bussiness Economics and Statistics, 19, 331-340.

Burgstaller, J. (2005). Interest rate pass-through estimates from vector autoregressive models. Working Paper No. 0510.

Calem, P.S. & Mester, L.J. (1995). Consumer Behavior and the Stickiness of Credit Card Interest Rates. American Economic Review, 85(5), 1327-1336.

Chang, H.L. & Su, C.W. (2010). The Lending-Deposit Rate Relationship in Eastern European Countries: Evidence from the Rank Test for Non-linear Cointegration. Finance a úvěr-Czech Journal of Economics and Finance, 60(6), 534-544.

Chang, H.L., Chen, L., Su, C.W. Zhu, M.N. & Liu, Y.S. (2011). The asymmetric adjustment between lending-deposit rates in G8 countries: Evidence from rank test. African Journal of Business Management, 5(11), 4432-4437.

de Bondt, G., Mojon, B. & Valla, N. (2002). Interest rate setting by universal banks and the monetary policy transmission mechanism in the euro area. mimeo, European Central Bank.

Dueker, M.J. (2000). Are Prime Rate Changes Asymmetric? Federal Reserve Bank of St. Louis Economic Review, 33-40.

Eita, J.H. (2012). Explaining Interest Rate Spread In Namibia. International Business & Economics Research Journal, 11(10), 1123-1132.

Enders, W. & Granger, C.W.J. (1998). Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates. Journal of Business and Economic Statistics, 16(3), 304-311.

Enders, W. & Siklos, P. 2001. ‘Co-integration and Threshold Adjustment’, Journal of Business & Economic Statistics, 19(2), 304-311.

Engle, R.F. & Granger, C.W.J. (1987). Co-integration and Error Correction: Representation, Estimation and Testing. Econometrica, 55, 251-276.

Ewing, B., Payne, J. & Forbes, S. (1998). Co-movements of the Prime Rate, CD Rate, and the S&P Financial Stock Index. Journal of Financial Research, 21, 469–482.

Freixas, X. & Rochet, J.C. (1997). Microeconomics of Banking. MIT Press, Cambridge, Massachusetts.

Hannan, T.H. & Berger, A.N. (1991). The Rigidity of Prices: Evidence from the Banking Industry. The American Economic Review, 81, 938–945.

Hofmann, B. & Mizen, P. (2004). Interest Rate Pass-Through and Monetary Transmission: Evidence from Individual Financial Institutions’ Interest Rates. Economica, 71, 99–123.

Misati, R.N., Nyamongo, E.M. & Kamau, A.W. (2011). Interest rate pass-through in Kenya. International Journal of Development Issues, 10(2), 170 – 182.

Mlima, A.P. & Hjalmarsson, L. (2002). Measurement of Inputs and Outputs in the Banking Industry. Tanzanet Journal, 3, 12–22.

Neumark, D. & Sharpe, S. (1992). Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits. Quarterly Journal of Economics, 107(2), 657-680.

Nguyen, C.V., Islam, A.M. & Ali, M.M. (2010). Bangladeshi Lending-Deposit Rate Spread: An Econometric Analysis. Global Economy and Finance Journal, 3(2), 238 – 246.

Rosen, R. L. (2002). What Goes Up Must Come Down? Asymmetries and Persistence in Bank Deposit Rates. Journal of Financial Services Research, 21(3), 173-193.

Stiglitz, J.E. & Weiss, A. (1981). Credit Rationing in Markets with Imperfect Information. American Economic Review, 71(3), 393-410.

Sweidan, O.D. (2012). Deposit Rate and Lending Rate in Jordan, Which leads Which? A Cointegration Analysis. Zagreb International Review of Economics & Business, 15(1), 37-48.

Thompson, M.A. (2006). Asymmetric Adjustment in the Prime Lending-Deposit Rate Spread. Review of Financial Economics, 323-329.

Toda, H.Y. &Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66, 225–250.

Winker, P. (1999). Sluggish adjustment of interest rates and credit rationing: an application of unit root testing and error correction modeling. Applied Economics, 31, 267–277.




How to Cite

Sheefeni, J. P. S. (2013). The Relationship between Deposit and Lending Rates in Namibia. Asian Journal of Business and Management, 1(4). Retrieved from