The paper investigates the bank-lending channel (BLC) of monetary policy in South Africa
using quarterly bank-level data for the period 2000Q1-2004Q4. Capital adequacy and bank size
are used as indicators for information problems faced by banks when they look for external
finance. Utilising dynamic panel estimation methods the study shows that BLC operates in South
Africa. The finding has some policy implications. First, there is need to coordinate monetary
policy with financial innovations and prudential banking regulations. Second, the overall effects
of monetary policy pursued by the South African Reserve Bank cannot be completely
characterised by interest rates only.