Rate Indicators and Customer Responses: A Conceptual Study of Interest Rate Perception in Commercial Banking

Abstract

Interest rate movements remain central to customer financial behaviour and bank competitiveness, yet limited attention has been given to how customers psychologically interpret rate-related decisions. This conceptual paper addresses this gap by examining how customer perception, bank performance, and perceived attractiveness of rate offerings shape interest rate perception within the Malaysian commercial banking context. The problem arises because traditional explanations of interest rate evaluation rely heavily on financial and macroeconomic indicators, overlooking the behavioural mechanisms through which customers judge fairness, clarity, and competitiveness. To address this issue, the study proposes a theoretical model grounded in Expectancy Disconfirmation Theory, Perceived Value Theory, and Behavioral Finance Theory. Using a conceptual synthesis approach, the paper integrates insights from consumer behaviour and behavioural finance literature to explain how expectation fulfilment, value assessments, and behavioural biases influence interest rate perception. The model suggests that interest rate perception is shaped not only by numerical rate levels, but also by trust, perceived value, and emotional reactions to perceived financial gains or losses. The principal outcome of this conceptual analysis is an expanded understanding of interest rate perception as a multidimensional psychological construct. The study concludes that banks must strengthen transparency, enhance communication on rate adjustments, and design rate offerings that maximise perceived value in order to improve customer acceptance of rate decisions. This conceptual contribution establishes a foundation for future empirical research and provides guidance for banks and policymakers seeking to better understand customer-driven responses to interest rate strategies in an increasingly competitive financial environment.