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

The Bank of Ghana (BoG) has cautioned that reductions in the monetary policy rate do not automatically translate into lower lending rates, stressing that the effectiveness of monetary policy depends largely on how decisions are transmitted through the banking system to businesses and households.

The warning was contained in remarks delivered on behalf of Governor Dr Johnson Asiama by Director of Research at the Bank of Ghana, Dr Simon Harvey, at the Chartered Institute of Bankers Ghana’s third Post-MPC Policy Seminar.

It comes after the Monetary Policy Committee (MPC) maintained the policy rate at 14% following its 132nd regular meeting held on September 23 and 24, 2026.

In the Governor’s remarks, Dr Harvey explained that monetary policy transmission is neither automatic nor instantaneous, noting that a change in the policy rate does not necessarily result in an immediate or proportional adjustment in the cost of borrowing.

“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 explained that the effectiveness of monetary policy should not be measured solely by changes in the benchmark rate but by its impact on lending and deposit rates, credit availability, investment, consumption, employment and broader economic activity.

“The ultimate objective is to ensure that monetary policy decisions translate into outcomes that support price stability and sustainable economic growth,” the Governor’s remarks stated.

Dr Harvey further noted that a credible and predictable monetary policy framework, supported by fiscal discipline and an efficient banking sector, was essential to strengthening the transmission process.

He stressed that banks must also improve their credit assessment and risk management practices, while borrowers must demonstrate discipline in meeting their repayment obligations.

According to him, the banking sector’s ability to extend credit at affordable rates is closely linked to the quality of its loan portfolio and the broader economic environment.

The Governor’s remarks also emphasised that credit expansion must be productive and sustainable rather than driven solely by the desire to increase lending volumes.

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

The seminar brought together banking professionals to examine the implications of the latest MPC decision and discuss measures to improve monetary policy transmission and support sustainable credit growth.

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DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.