Impact of monetary policy on financial inclusion in emerging markets

Ozili, Peterson K (2023): Impact of monetary policy on financial inclusion in emerging markets. Published in:

Abstract

The study investigates the impact of monetary policy on the level of financial inclusion in the big-five emerging market countries from 2004 to 2020. Several indicators of financial inclusion and the central bank interest rate were used in the analysis. It was found that the monetary pol-icy rate has a mixed effect on financial inclusion, and the effect depends on the dimension of fi-nancial inclusion examined. Specifically, a high monetary policy rate has a significant negative impact on financial inclusion through a reduction in the number of depositors in commercial banks. A high monetary policy rate also has a significant positive impact on financial inclusion through greater bank branch expansion. The policy implication is that both contractionary and expansionary monetary policies lead to positive improvements in specific indicators of financial inclusion, because increase in interest rate leads to bank branch expansion which is beneficial for financial inclusion and decrease in interest rate leads to increase in the number of depositors in commercial banks which is also beneficial for financial inclusion. It was also found that the rising monetary policy rate has a negative effect on all indicators of financial inclusion in the post-financial crisis period. Overall, the effect of monetary policy on financial inclusion seem to depend on the monetary policy tool used by the monetary authority and the dimension of financial inclusion examined. The monetary authorities should pay attention to how their monetary policy choices might affect the level of financial inclusion and reduce the benefits that society gains from financial inclusion.

• Item Type: MPRA Paper
• Language: English
• Keywords: monetary policy, interest rate, financial inclusion, access to finance, emerging markets
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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