Policy interest rate expectations and the behavior of the interbank money market

Garcia P.; Pozo J.; Velarde R. · Finance Research Letters (2026) · DOI: 10.1016/j.frl.2026.110483

Resumen

This article analyzes the influence of monetary policy rate expectations on the reserve accumulation behavior of financial institutions in the Peruvian interbank money market. Using daily data from 39 financial institutions between January 2017 and September 2024, we show that policy rate expectations significantly affect the timing of reserve accumulation within the reserve maintenance period. Financial institutions anticipating policy rate increases accumulate reserves more rapidly before the monetary policy decision, while institutions expecting rate cuts accumulate reserves more slowly. These effects weaken once the policy decision has taken place, consistent with an intertemporal reallocation of reserve accumulation. As a result, expected policy rate increases (decreases) are associated with a faster (slower) average pace of reserve build-up over the maintenance period. The results are robust across alternative specifications and subsamples, and are observed under both expected policy rate increases and reductions. We also find that the response to expectations is concentrated among banks. Our findings contribute to a better understanding of reserve demand dynamics and provide insights for the implementation of central bank liquidity operations.

Instituciones: Pontificia Universidad Católica del Perú; Universidad del Pacífico