Analysing the relationship between Banks’ Deposit Interest Rate and Deposit Mobilisation: Empirical evidence from Zimbabwean Commercial Banks (1980-2006)

Abstract

This study sought to analyse the relationship between banks' deposit interest rates and deposit mobilisation in Zimbabwe for the period 2000-2006. We developed an Ordinary Least Squares (OLS) model to show the relationship between the response and explanatory variables. Pearson's correlation coeffient (was employed to demonstrate the strength of the relationship. Before running the regression equation the data was first tested for; stationarity using the Augmented Dicker-Fuller Test, multicollinearity using correlation matrix and autocorrelation using the Durbin-Watson statistic. The study found a positive relationship between deposit rates and banks' deposits for the period under study and all the other explanatory variables were statistically significant. Also, the coefficient of determination () was found to be significantly high showing that the explanatory variables were able to account for the total variation of the dependent variable-deposits. The study recommended banks to tap into the unbanked markets through massive branch expansion, offering low cost accounts and increasing interest offered on deposits to attract more deposits. The government should come up with consistent policies and create a conducive political environment for business and foreign direct investment.