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Monetary Policy Pass-Through to Mortgage Rates

Severin Bernhard, James Graham, Shaun Markham

This Note examines how monetary policy passes through to mortgage interest rates across the economy and at the individual bank level in the short and medium-term.

A 1% change in the Official Cash Rate (OCR) will move mortgage rates by 0.34% within 1 month. The pass-through increases over time, with the peak impact on mortgage rates occurring about 6 months after the change in the OCR.

There are significant differences in monetary policy pass-through to mortgage rates across banks.

We briefly investigate why monetary policy pass-through to mortgage rates differs across banks. Some of the reasons we explore include: retail funding share, foreign funding share, and size of bank.