Monetary policy pass-through to credit in inflation-targeting economies

This paper examines the relationship between central bank policy rates and credit growth in the private non-financial sector across 22 inflation-targeting economies over the period 2014Q1–2024Q4. Using quarterly data, panel-fixed effects regressions and local projection methods, the analysis documents a stronger negative association between policy rates and credit growth during 2022–2024 tightening cycle than during earlier periods. On average, higher policy rates are associated with slower growth in household, corporate and private sector credit, with the relationship becoming more pronounced after 2022. Additional heterogeneity analyses indicate that the stronger post-2022 association is most evident among emerging market and developing economies and economies with a relatively low incidence of near-lower-bound policy rate episodes. The findings are robust to alternative lag structures and the inclusion of macroeconomic controls. While the estimates should be interpreted as conditional associations rather than fully identified causal effects, the results suggest that credit growth became more responsive to policy rate changes during the recent tightening cycle, consistent with tighter financial conditions and stronger monetary policy transmission in inflation-targeting economies.