Dr Sajid Chaudhry, an Economist at Aston University in the United Kingdom, has said cuts in the Bank of Ghana’s Monetary Policy Rate will have limited impact on economic growth unless commercial banks reduce lending rates for businesses and consumers.
He explained that while lower policy rates can support economic expansion, the benefits would not reach the real economy if banks fail to pass on reduced borrowing costs to customers.
Dr Chaudhry, who is also an International Fellow of the Institute of Economic Affairs (IEA), made the remarks at a forum on interest rates and economic development in Ghana.
The forum examined the relationship between monetary policy decisions and their effect on the broader economy, including private sector growth and Gross Domestic Product (GDP) expansion.
“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,” he stated.
According to him, an analysis of economic data from 2002 to 2024 showed that reductions in lending rates were linked to stronger GDP growth through increased private sector credit.
However, he noted that high interest rates and inflationary pressures had historically contributed to weaker economic performance.
Dr Chaudhry expressed concern that commercial banks in Ghana have often been slow to reduce lending rates despite cuts in the central bank’s policy rate.
He attributed the weak transmission of policy rate reductions to factors such as high non-performing loans, exchange rate instability, and broader macroeconomic uncertainty.
According to him, banks have maintained wide net interest margins, limiting the intended impact of monetary easing on businesses and economic activity.
He therefore urged policymakers to complement monetary easing with measures aimed at strengthening credit intermediation and improving the financial health of banks.
Dr Chaudhry commended the Bank of Ghana for reducing policy rates in line with declining inflation trends but stressed that additional action was needed to ensure the benefits reached borrowers.
He recommended that the central bank use regulatory influence to encourage commercial banks to respond more quickly to policy rate changes.
“The central bank can use some kind of regulatory measures to persuade banks to translate monetary policy rate cuts into lower lending rates,” he said.
Speaking to the media, Dr Chaudhry also called on commercial banks to improve loan screening and monitoring systems to reduce bad debts within the sector.
He further encouraged businesses to remain productive and honour loan repayment obligations to improve confidence within the banking system.
“When banks have high levels of bad loans, they are less willing and able to pass lower policy rates through to cheaper lending, which blocks the impact of monetary easing on growth,” he explained.
For government, the economist emphasised the need to maintain macroeconomic stability through prudent spending, controlled inflation, stable banks, and exchange rate stability.
According to him, these conditions are essential to ensuring that policy rate reductions translate into lower borrowing costs and stronger GDP growth.
