We analyze the differential impact of domestic and foreign monetary policy on the local supply of bank credit in domestic and foreign currencies. We analyze a novel, supervisory dataset from Hungary that records all bank lending to firms including its currency denomination. Accounting for time-varying firm-specific heterogeneity in loan demand, we find that a lower domestic interest rate expands the supply of credit in the domestic but not in the foreign currency. A lower foreign interest rate on the other hand expands lending by lowly versus highly capitalized banks relatively more in the foreign than in the domestic currency. (98 words)

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and Zürich, and conference participants at the Swiss Finance Research Days and LARGE-BOFIT Workshop on Banking and Finance in Emerging Markets (Strasbourg) for helpful comments. We are grateful to Miklós Koren and Ádám Szeidl for access to the Complex database. Győző Gyöngyösi and István Schindler provided excellent research assistance. Dzsamila Vonnák gratefully acknowledges financial assistance from the Summer Visitor Program of the Central Bank of Hungary and Hungarian Academy of Sciences Momentum Grant 'Firms, Strategy and Performance'. The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the Central Bank of Hungary or their staff.

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