Rate Cuts Not Transmitting to Businesses
Ghanaian businesses are yet to benefit meaningfully from the country’s recent decline in interest rates, as commercial lending conditions remain tight despite broad easing in macroeconomic indicators.
Although inflation has remained relatively stable and money market rates have fallen sharply over the past year, banks have been slow to reduce lending costs, leaving the real economy only partially insulated from the monetary easing cycle.
At the Bank of Ghana’s 130th Monetary Policy Committee (MPC) meeting, the central bank maintained its policy rate at 14.0%, even as it acknowledged continued easing in financial conditions across the economy. The Bank also announced a reduction in the dynamic cash reserve ratio to a uniform 20%, effective June 4, 2026, as part of broader liquidity management reforms aimed at supporting credit growth.
Key market indicators show a significant decline in interest rates. The 91-day Treasury bill yield dropped sharply to 4.9% in April 2026, compared with 15.5% a year earlier. Similarly, the Ghana Reference Rate fell from 23.99% to 10.06% over the same period, while average commercial bank lending rates eased from 27.4% to 16.3%.
Inflation has also remained subdued, edging slightly up to 3.4% in April 2026 from 3.2% in March, while core inflation continued to ease, suggesting that underlying price pressures remain contained.
On the credit side, private sector lending has shown strong recovery momentum. Nominal private sector credit grew by 28.7% in April 2026, up from 19.9% a year earlier, while real credit growth rose sharply to 24.5%, reversing a contraction of 1.1% recorded in the same period of 2025.
Despite these positive macroeconomic signals, businesses continue to express concern that borrowing costs have not fallen in line with the broader decline in market rates. Many firms say access to affordable credit remains a key constraint to expansion, investment, and job creation.
Explaining the lag in transmission, the Governor of the Bank of Ghana said reductions in policy and market rates typically take time to reflect in retail lending, particularly during periods of structural adjustment in the financial sector.
He noted that banks require time to reprice existing assets and adjust balance sheet positions when interest rate environments shift.
“When the interest rates are falling, it may take a while… remember the low interest regime we are having currently is quite new to the banks,” he said.
He further explained that lending decisions are not driven solely by liquidity conditions, but also by risk considerations and the availability of viable investment opportunities.
“You don’t just rush into giving out loans… there has to be bankable adequate projects… you don’t compromise your credit appraisal standards,” he added.
According to the central bank, the current phase of monetary easing is expected to gradually feed through into lower lending rates as banks adjust pricing models and risk frameworks. However, it warned that the transmission process is often uneven and delayed.
The MPC’s decision to hold the policy rate steady at 14.0% was also influenced by external risks, including geopolitical tensions in the Middle East, which the Bank said could reignite inflationary pressures and disrupt the easing trajectory.
For now, while macroeconomic indicators point to a clear and sustained easing in financial conditions, Ghana’s businesses continue to wait for meaningful relief in borrowing costs, highlighting a persistent gap between policy intentions and credit conditions on the ground.
