Cross-Currency Basis Spread and Its Impact on Corporate Lending Rates in the Czech Banking Sector
Cross-Currency Basis Spread and Its Impact on Corporate Lending Rates in the Czech Banking Sector

Summary/Abstract: For successful monetary policy implementation, it is crucial to know the pricing behaviourof banks and the determinants of banks’ lending rates. With the onset of the global financialcrisis, markets in unsecured lending ceased to provide a reliable level of market costs,while markets in cross-currency products gained significance. The aim of this researchis to gauge the extent to which the EUR-CZK cross-currency basis spread is reflectedin the corporate lending rates provided by Czech banks. We discovered that just over 50%of the changes in the basis pass through to the lending rates. The greater part of this passthroughcan be identified in EUR lending rates, which are, as a result, higher. In the caseof CZK, the negative basis should tend to decrease the lending rates. However, the impactis fairly limited, and we were not able to confirm any significant long-run relationship.

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