Accra: Dr Sajid Chaudhry, an economist at Aston University, United Kingdom, has indicated that Bank of Ghana policy rate cuts will have limited impact on economic growth unless banks reduce lending rates. He emphasized that lower lending rates are necessary to stimulate economic growth but expressed concern about the slow transmission of policy rate cuts by commercial banks.
According to Ghana News Agency, Dr Chaudhry, who is also an International Fellow of the Institute of Economic Affairs (IEA), highlighted at a forum on interest rates and economic development in Ghana that the effectiveness of monetary easing depends on its impact on lending costs and private-sector credit. He pointed out that "Monetary easing can support growth in Ghana, but only if it is transmitted through lower lending costs, stronger private-sector credit, stable exchange rates, and healthier bank balance sheets."
Dr Chaudhry shared insights based on an analysis of data from 2002 to 2024, which showed that reductions in lending rates were associated with higher Gross Domestic Product growth, while higher interest rates and inflation weakened growth. He noted that commercial banks had been slow to adjust lending rates downward, maintaining wide net interest margins due to non-performing loans, exchange-rate instability, and broader macroeconomic uncertainty.
He suggested that policy should combine monetary easing with measures that strengthen credit intermediation and bank balance sheets. Dr Chaudhry commended the Bank of Ghana for lowering rates in line with falling inflation but recommended that the Central Bank use regulatory measures to encourage faster transmission of policy rate cuts to borrowers and improve deposit rates when monetary policy tightened.
Dr Chaudhry further advised that "The central bank can use some kind of regulatory measures to really persuade banks to really translate those interest rate monetary policy rate cuts into the lending rates." In response to questions from the Ghana News Agency, he urged commercial banks to strengthen loan screening and monitoring while encouraging businesses to improve productivity and repay loans on time.
He also pointed out that "When banks have high levels of bad loans, they're less willing and able to pass lower policy rates through to cheaper lending, which blocks the impact of monetary easing on growth." Dr Chaudhry urged the Government to maintain macroeconomic stability through stable exchange rates, controlled inflation, prudent spending, and a sound banking sector to support lower lending rates and economic growth.