Despite the Bank of Ghana’s (BoG) sharp 300-basis-point reduction in its policy rate to 25%, commercial banks are unlikely to reflect the cut in any substantial reduction in lending rates, according to economist Professor Patrick Asuming.
In what has been described as one of the boldest monetary easing measures in recent years, the central bank’s July 2025 Monetary Policy Committee (MPC) decision aims to support economic recovery amid improving macroeconomic conditions and a sustained disinflation trend.
However, Professor Asuming warns that lingering vulnerabilities in the banking sector particularly high levels of non-performing loans (NPLs) and sustained risk aversion could limit the effectiveness of the rate cut in easing credit conditions.
“Whether this will lead to substantial cuts in lending rates is unclear, non-performing loans are still very high, and I am sure the banks will be more cautious. Maybe for more credit-worthy customers there might be some substantial cut in their lending rate.” He highlighted in an interview.
Professor Asuming noted that the monetary easing should translate into a modest 120-basis-point reduction in the Ghana Reference Rate (GRR) the benchmark used by banks to set lending rates.
“Every time you see a 100-basis-point cut in the policy rate, directly you should see a 40-basis-point reduction in the Ghana Reference Rate. So, with a 300-basis-point cut, we should see about a 120-basis-point reduction.” he explained.
He added that there could be further indirect transmission through the interbank market, where lower rates would enhance liquidity and exert additional downward pressure on the GRR. Still, that may not be enough to trigger broad-based reductions in loan pricing.
“There is also an indirect impact of the policy rate through the interbank market. Usually, you will see some reduction in the interbank rate, which will provide additional feedback effects on the GRR,” he added.
BoG’s Strategy: Balancing Growth with Stability
Announcing the rate cut, BoG Governor Dr. Johnson Asiama acknowledged that while macroeconomic indicators are trending positively, underlying risks remain, and the central bank will continue to monitor the situation closely.
“We are easing the policy stance to support economic recovery, but we remain vigilant. Price stability and financial soundness remain our core mandate,” Dr. Asiama said.
The move by the central bank is intended to lower the cost of borrowing, stimulate private sector growth, and sustain the current disinflationary path. However, analysts say the effectiveness of the policy will hinge on whether banks are willing and able to pass the benefits on to borrowers.
For now, the broad consensus is that while the BoG’s intervention sends a positive signal to the market, structural challenges within the banking sector such as elevated NPL ratios, tightened risk controls, and thin profit margins will temper the pace and scale of any adjustments to lending rates.
Unless systemic risks are further addressed, banks may remain selective in offering rate relief, favouring only the most creditworthy clients, while leaving SMEs and higher-risk borrowers grappling with elevated financing costs.
