Investigating the Relationship Between Interest Rates and Liquidity in Tejarat Bank

Subject Areas : Computational economics

Ali Akbar Baghestani ¹ , Reza Rahimi ²

1 - IAU
2 - IAU

Received: 2022-05-01 Accepted : 2022-05-01 Published : 2022-02-20

Keywords: Liquidity, ARDL method, Interest Rate, Commercial Bank,

Abstract :

Interest rates are one of the most effective channels of money transfer. Interest ratescan potentially affect the economy as a whole by determining the level of manyeconomic variables such as investment, capital flows, credit demand, bankprofitability, liquidity and exchange rates. Since the profit curve can absorb andpredict the future progress of the economy, it is expected that by creating theconditions for future expectations, it will affect the behavior and profit of the bankin creating more liquidity. Therefore, in this study, Auto Regressive Distributed Lag(ARDL) model was used to investigate the effect of interest rates on liquidity. Theresults showed that the variables of interest rates and capital have a positive andsignificant effect on liquidity, while inflation has a negative effect. Therefore, achange in bank interest rates will lack the necessary efficiency to stimulate the realsector of the economy. Determining bank interest rates without considering changesin inflation rates cannot explain why there is no savings in banks. In order forgovernments to be able to provide the central bank with the tools it needs tostimulate the real sector of the economy, it is essential that efforts be made to reduceeconomic risk in addition to empowering the central bank to rationalize bank interestrates. In this case, the central bank will be able to use bank interest rates as anefficient tool to manage liquidity and convert it into investment and productionflows.

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