Effects of Monetary Policy on Lending Behavior of Commercial Banks in Tanzania

Abstract

This study is on the effects of monetary policy on lending behavior of commercial banks in Tanzania. Arellano-Bond Generalized Method of Moments (GMM) technique was used to fit quarterly panel data of 27 commercial banks in Tanzania over the period 2012: I to 2017: II. The Pearson’s correlation matrix suggested existence of a positive linear relationship between the discount rate and the interbank cash market rate. The GMM estimation revealed the lagged lending rate, the interaction term of reserve ratio, lagged bank size, and the interaction term of lagged discount rate and lagged capitalization have a positive relationship with the lending behavior of commercial banks, while, reserve ratio and the interaction term of discount rate and lagged capitalization have a negative relationship with the lending behavior of commercial banks. The findings revealed the quantity-based monetary policy was stronger during the sample period but its effect was varied with the size and level capitalization of the banks.