Impact of Interest Rate on Private Sector Credit; Evidence

Abstract

This study explored the long and short term effect of interest rate on private sector credit on Pakistan for the period of 1975 to 2011. The Stationary of data was analyzed by Augmented Dickey Fuller and Phillips Peron test. This study applied Auto Regressive Distribution Lag (ARDL) model for the purpose of analyzing long and short term relationship. The results revealed significant negative effect of interest rate on private sector credit in the long run, and also in the short run. The results also indicated significant positive effect of inflation on private sector credit in long and short run. However, exchange rate was found to have no effect on private sector credit.

Does Personal Finance Impact on Financial Development? Evidence from Bangladesh

“…Interest rate negatively associates with financial development and this finding similar with Aftab et al (2016) but adverse with Krause et al (2006). When rate of interest goes high, private companies have to pay higher interest on their credit, as a results companies become reluctant to take loan, which reduce the flow of capital into the organization, thereby financial development of the country's goes down.…”

“…Moreover, ris-ing level of interest rate increase cost of borrower, in consequence, private sectors remain reluctant to borrow funds, which have adverse impact on financial development. Aftab, Jebran, Ullah, and Awais (2016) observed negative link between interest rate and financial development. Thus, minus sign consider for interest rate in this study.…”

Macroeconomic Factors Affecting Commercial Banks’ Credit to Small And Medium-Sized Enterprises in Kenya.

“…Conversely, Aftab, Jebran, Ullah, and Awais (2016) argued that the exchange rate does not impact credit to the private sector. Aftab et al (2016) noted that the exchange rate has a positive and significant contribution to investment. Aftab et al (2016) argued that an increase in the exchange rate increases investors' wealth because of increased income.…”

“…Aftab et al (2016) noted that the exchange rate has a positive and significant contribution to investment. Aftab et al (2016) argued that an increase in the exchange rate increases investors' wealth because of increased income. Aftab et al (2016) further argued that an increase in the exchange reduces the funds available for the private sector.…”

“…Aftab et al (2016) argued that an increase in the exchange rate increases investors' wealth because of increased income. Aftab et al (2016) further argued that an increase in the exchange reduces the funds available for the private sector. Therefore, private investment will reduce due to fewer funds available in the private sector.…”