Pass-Through of the Bank of Russia Key Rate into Deposit Rates Between 2020 and 2022


In the recent past, the Bank of Russia has both increased and decreased its policy rate: it reduced it in 2020–2021 to support the economy and raised it in 2021–2022 to tame the accelerating inflation and counter the sanctions consequences. To measure the impact of these changes on deposit rates, this paper relies on the unique monthly data on deposit rates that have been offered by Russian banks. About half of banks refrain from advertising their deposit rates on the aggregator website. To account for this missing data and the possibility of a non-Gaussian error distribution we use Heckman copula model. We identify the rouble funding component on its basis and compare it with the Bank of Russia key rate. I conclude that the pass-through in 2020–2022 is incomplete and comes with a two- month lag. I show that an upward revision of the key rate is best captured by banks that apply an internal ratings-based approach to credit risk assessment in the calculation of capital adequacy ratios.