Policy rate decision takes time to reflect in lower lending rates – BoG

The Bank of Ghana (BoG) has warned that reducing the monetary policy rate does not automatically lead to lower lending rates. Director of Research Dr Simon Harvey explained this at the Chartered Institute of Bankers Ghana's third Post-MPC Policy Seminar, speaking on behalf of Governor Dr Johnson Asiama. The Monetary Policy Committee (MPC) kept the policy rate at 14% after its 132nd meeting on September 23-24, 2026.

Harvey emphasized that changes in the policy rate do not always result in immediate or proportional changes in borrowing costs. "Banks must consider their cost of funds, credit risk, operating costs, capital requirements, expected losses, and the overall risk environment when pricing loans," he said. He stressed that assessing the effectiveness of monetary policy should not be done solely by changes in the benchmark rate, but by its impact on lending, deposit rates, credit availability, investment, consumption, employment, and overall economic activity.

The ultimate goal, according to Harvey, is ensuring that monetary policy decisions yield outcomes that support price stability and sustainable economic growth. He also highlighted the importance of a credible and predictable monetary policy framework, backed by fiscal discipline and an efficient banking sector, to strengthen the transmission process.

Banks must enhance credit assessment and risk management practices, while borrowers should show discipline in meeting repayment obligations. The banking sector's capacity to lend at affordable rates is closely tied to the quality of its loan portfolio and the broader economic context. The Governor stressed that credit expansion must be productive and sustainable, not just for the sake of increasing lending volumes.

"Rapid credit growth without adequate risk assessment can lead to defaults, impairment charges, and ultimately weaken the banking system," the statement cautioned.