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

The Bank of Ghana (BoG) has cautioned that changes in the monetary policy rate do not necessarily result in lower lending rates, emphasizing that the effectiveness of monetary policy hinges on how decisions are transmitted through the banking system to businesses and households. This warning was conveyed by Dr Simon Harvey, Director of Research at the Bank of Ghana, on behalf of Governor Dr Johnson Asiama during the Chartered Institute of Bankers Ghana’s third Post-MPC Policy Seminar.

The Monetary Policy Committee (MPC) decided to keep the policy rate at 14% following their 132nd regular meeting held on September 23 and 24, 2026.

Dr Harvey clarified that the process of monetary policy transmission is not automatic or instantaneous, stating that a change in the policy rate does not automatically lead to a proportional adjustment in the cost of borrowing. He elaborated that banks must take into account their cost of funds, credit risk, operating costs, capital requirements, expected losses, and the overall risk environment when determining loan rates.

The effectiveness of monetary policy, according to Dr Harvey, should be evaluated not only by changes in the benchmark rate but also by its effect on lending and deposit rates, credit availability, investment, consumption, employment, and overall economic activity. He reiterated that the primary goal of monetary policy decisions is to ensure that they contribute to price stability and sustainable economic growth.

Dr Harvey also stressed the importance of a credible and predictable monetary policy framework, underpinned by fiscal discipline and an efficient banking sector, to enhance the transmission process. He highlighted that banks need to enhance their credit assessment and risk management practices, while borrowers must demonstrate responsibility in fulfilling their repayment commitments.

The BoG's remarks underscored that the banking sector's capacity to extend credit at affordable rates is heavily dependent on the quality of its loan portfolio and the prevailing economic conditions. The Governor's address further emphasized that credit expansion should be both productive and sustainable, rather than being driven solely by the motivation to boost lending volumes.

He warned that if credit growth does not account for proper risk assessment, it could lead to defaults, impairment charges, and ultimately undermine the banking system. The seminar gathered banking professionals to discuss the implications of the latest MPC decision and explore strategies to improve monetary policy transmission and promote sustainable credit growth.