Forward Guidance On Bank’s Lending: Case Study Of Pakistani Financial Institutions
Author: Maryam Kifayat

The core objective of the study is to analyses the role of unconventional tools of the monetary policy on bank’s lending behaviour.Monetary policy has direct impact on deposits, Disyatat (2011)that’s why while setting lending rates banks takes into account the expected changes in monetary policy, Kwapil and Scharler (2009).But there is an prestigious critic about the lending behaviour of banks as ,Delis et al. (2020)according to risk taking channels of monetary policy, when the monetary authorities announced to keeping the policy rate low for future at that news banks respond by the charge of higher cost of loans on average when lending to more risky borrowers.However,this study suggest that forward guidance effects are differ across bank to bank depending on their characteristics. Well capitalized banks due to availability of strong balance sheet and bank capital charge low loan spreads in light of forward guidance.To achieve our research objectives we take into account the monetary policy statements shared by state bank of Pakistan for the period of 2005-2020 and measure all the froward looking statements of policy-makers.By measuring the indications of future expected policy rate through the language of the policy makers which they used while sharing about their current and expected implemented policy actions , we investigate its impact on the cost of loans issued by 23 different public and private banks to the financial institutions of the Pakistan.Now a days market participants are more forward-looking so the policy makers should be focused on sharing both types of forward guidance (Delphic forward guidance and Odyssean forward guidance) to bring the economy towards betterment. Supervisor:- Dr. Ahsan ul Haq Satti

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Supervisor: Ahsan ul Haq Satti

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