By Francis Ntow, GNA
Accra, May 20, GNA – Dr Sajid Chaudhry, an economist at Aston University, United Kingdom, has urged commercial banks to reduce lending rates to enable the Bank of Ghana’s monetary policy easing to translate into meaningful economic growth.
He said although the Bank of Ghana’s recent policy rate cuts were a step in the right direction, their impact on the real economy would remain limited if businesses and households continued to face high borrowing costs.
Dr Chaudhry, 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.
He explained that effective monetary easing depended largely on lower lending costs, increased private-sector credit, stable exchange rates, and stronger bank balance sheets.
“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 said.
Dr Chaudhry said an analysis of economic data from 2002 to 2024 showed that lower lending rates were associated with higher Gross Domestic Product growth, while high interest rates and inflation weakened economic expansion.
He expressed concern over the slow transmission of policy rate cuts by commercial banks, noting that many banks continued to maintain wide interest margins because of non-performing loans, exchange-rate volatility, and broader macroeconomic uncertainty.
He commended the Bank of Ghana for reducing the policy rate in response to declining inflation, but emphasised the need for complementary measures to improve credit flow to the private sector.
Dr Chaudhry called on the Central Bank to consider regulatory measures that would encourage banks to respond more quickly to policy rate reductions by lowering lending rates for borrowers.
He also advocated improved deposit rates during periods of monetary policy tightening to protect savers and strengthen confidence in the financial system.
Responding to questions from the Ghana News Agency, Dr Chaudhry urged commercial banks to strengthen loan screening and monitoring systems to reduce bad loans and improve credit quality.
He also encouraged businesses to improve productivity and honour loan repayment obligations to support a healthier banking sector.
“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 said.
Dr Chaudhry further urged Government to sustain macroeconomic stability through prudent spending, controlled inflation, stable exchange rates, and a resilient banking sector to create conditions for lower lending rates and stronger economic growth.
GNA
Edited by Ken Sackey/ Beatrice Asamani Savage