Colombian banks' interest rate behavior limits effectiveness of monetary policy.
The study looked at how Colombian banks adjust their interest rates in response to changes in wholesale rates. They found that banks only partially pass on these changes to retail rates, and the extent of this varies between banks. Retail deposit rates are adjusted more quickly downwards than upwards, suggesting possible collusion among banks. On the other hand, retail lending rates are adjusted more quickly downwards than upwards, indicating that expansionary monetary policy in Colombia may be more effective than contractionary policy.