Banks pass on rate hikes, but go slow when rates fall

Banks have been raising deposit and lending rates in line with central bank hikes, but they have been slower to pass through cuts, a pattern that the headline characterizes as asymmetric rate pass-through. The transmission mechanism operates through net interest margins: when policy rates rise, lenders reprice loans quickly and capture wider spreads, while deposit costs lag, and when policy rates fall, the process reverses, allowing banks to hold lending rates higher for longer and protect margins. This asymmetry slows the easing effect that central banks intend, tightening financial conditions for borrowers even after policy has turned, and it is most visible in floating-rate mortgages, auto loans, and corporate credit lines. Bank equities and the broader financial sector are the most directly exposed, since margin dynamics drive their earnings, while consumer credit sensitivity and interest-rate-sensitive household demand are affected on the other side of the trade. Traders should watch the next central bank policy decision and the accompanying monetary transmission commentary, along with the subsequent lending-rate surveys, to judge whether the lag in cuts is persisting.

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