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May 20, 2026
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Policy rate cuts won’t spur growth without cheaper bank loans – Economist
Money
Policy
Growth
Key Points
- Economist Dr. Sajid Chaudhry argues that Bank of Ghana policy rate cuts will have limited impact on economic growth unless commercial banks also reduce lending rates.
- He noted commercial banks are slow to transmit rate cuts due to non-performing loans, exchange-rate instability, and macroeconomic uncertainty, maintaining wide net interest margins.
- Dr. Chaudhry's analysis from 2002-2024 shows a direct correlation between lower lending rates and higher GDP growth, while high interest rates weaken economic performance.
- He recommends the Central Bank adopt regulatory measures to encourage faster transmission of policy rate cuts to borrowers and improve deposit rates when monetary policy tightens.
- He also urged commercial banks to strengthen loan screening, businesses to improve productivity and repay loans, and the government to maintain macroeconomic stability.
Why This Matters
This analysis is crucial for Ghana as it identifies a key impediment to economic growth: the slow transmission of monetary policy. If commercial banks do not lower lending rates despite policy rate cuts, the private sector's access to affordable credit remains constrained, undermining efforts to stimulate economic activity and achieve broader development goals. Addressing this bottleneck is vital for the effectiveness of the Bank of Ghana's monetary policy and for fostering a more robust business environment.
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