- Cheaper Credit Must Follow Falling Inflation – Economist Tells Banks
Economist and University of Ghana Business School lecturer, Prof Agyapomaa Gyeke-Dako, has urged banks to reduce lending rates, arguing that improving macroeconomic conditions should translate into cheaper credit for businesses and households.
Speaking on Channel One TV’s Quarterly Economic Outlook, she said the decline in inflation and easing money market interest rates had created room for financial institutions to lower borrowing costs.
“I think that interest rates coming down is also a function of what is happening in the macroeconomy as well. So if inflation is high or if you expect inflation to go up, you don’t expect that interest rates would be low,” she said.
“Thankfully, inflation is coming down and therefore I think that’s why we are all putting pressure on the banks now to be able to reduce their lending rates,” she added.
Her comments capture one of the most important questions facing Ghana’s economy in the current disinflation cycle: when will improving macroeconomic indicators begin to reflect meaningfully in the cost of credit?
Inflation has fallen sharply from the crisis-era levels that forced monetary policy into a highly restrictive stance. The Ghana Statistical Service puts headline inflation at 5.30% for June 2026, still below the Bank of Ghana’s medium-term target band of 8.00% ± 2.00%, although it rose from 3.70% in May.
The Bank of Ghana, for its part, maintained the Monetary Policy Rate at 14.00% at its May 2026 meeting, citing external uncertainties and emerging inflationary pressures despite improvements in the domestic economy.
That combination leaves Ghana in an unusual position. Inflation is relatively low by recent historical standards, the policy rate has already come down significantly, and money market rates have eased. Yet many businesses continue to complain that lending rates remain too high to support expansion, hiring and working capital needs.
The pressure on banks is therefore not surprising. When inflation was high, banks had a strong justification for pricing loans aggressively. The cost of funds was high, inflation risk was high, and uncertainty around exchange rates, fiscal policy and borrower repayment capacity was elevated. In that environment, high lending rates were defended as a reflection of macroeconomic risk.
But as inflation eases, that justification becomes harder to sustain without a convincing explanation.
For businesses, especially small and medium-sized enterprises, the lending-rate question is not academic. Credit cost determines whether a company can restock, buy equipment, expand production, hire staff or survive a difficult cash-flow cycle. If inflation falls but borrowing remains expensive, the benefits of macroeconomic stability will remain trapped in official indicators rather than reaching the real economy.
This is why Prof Gyeke-Dako’s call matters. A lower inflation environment should ordinarily support lower nominal interest rates. But the transmission from macroeconomic improvement to lending rates is rarely automatic in Ghana’s banking sector. Banks do not price loans only on inflation and the policy rate. They also consider borrower risk, non-performing loans, operating costs, capital requirements, liquidity conditions, Treasury bill yields, reserve requirements and the profitability of alternative investments.
Banks may argue that while inflation has eased, credit risk remains high. Many businesses are still recovering from years of elevated inflation, currency depreciation, high utility costs, weak demand and debt restructuring shocks. A lower inflation rate does not immediately repair corporate balance sheets. It does not automatically improve cash flows. It does not instantly reduce the probability of default.
But that does not fully absolve banks. The sector has benefited from a high-yield environment in recent years, with many institutions increasing exposure to government securities when private-sector lending became riskier. If banks continue to prefer safer returns from securities while lending to businesses at punitive rates, the economy may struggle to convert macroeconomic stability into private-sector growth.
Ghana cannot build a stronger economy on lower inflation alone. Disinflation creates the conditions for recovery, but affordable credit helps convert those conditions into investment, output and jobs. Without cheaper lending, businesses may postpone expansion, consumers may delay major purchases, and the broader recovery may become slower than the headline data suggests.
This is particularly important as government seeks stronger private-sector participation in growth. The private sector cannot play that role effectively if the cost of borrowing remains disconnected from improving macroeconomic conditions.
There is also a confidence issue. When businesses see inflation falling but lending rates remaining stubbornly high, they begin to question whether the benefits of stabilisation are being shared fairly. Households face a similar concern. Lower inflation may slow the rate at which prices rise, but it does not mean living costs have fallen. If credit also remains expensive, households receive little immediate relief.
Banks must therefore strike a balance. They must protect depositors, manage risk and preserve profitability. But they must also recognise that lending rates carry wider economic consequences. Excessively high rates can weaken repayment capacity, suppress business activity and ultimately worsen the same credit risks banks are trying to avoid.
There is a strong argument for a gradual but visible reduction in lending rates, especially for credible borrowers, productive sectors and businesses with strong cash-flow records. Banks do not need to cut rates recklessly. But they must show that the easing macroeconomic environment is beginning to influence loan pricing.
Regulators also have a role to play. The Bank of Ghana cannot simply dictate commercial lending rates in a liberalised financial system. But it can strengthen transparency around bank pricing, improve competition, monitor spreads, and ensure that reductions in policy and money market rates are not absorbed entirely by bank margins.
A more transparent lending-rate environment would help the public understand why some rates remain high and which institutions are responding more quickly to macroeconomic improvements.
The debate also raises a broader structural issue: Ghana’s financial system still struggles to channel long-term affordable capital into productive sectors. Banks rely heavily on relatively short-term deposits, making long-term lending difficult. Capital markets remain underdeveloped for many firms. Credit information, collateral enforcement and business documentation challenges continue to increase the perceived risk of lending.
This means the call for lower lending rates must be matched by reforms that reduce the underlying cost and risk of credit.
For now, however, Prof Gyeke-Dako’s message is clear. If inflation is easing and interest rates in the broader economy are coming down, banks must begin to reflect that shift in the cost of loans.
The macroeconomic recovery will be judged not only by inflation numbers, policy rates and money market yields. It will be judged by whether businesses can borrow at rates that allow them to grow.
Ghana has made progress in restoring stability. The next question is whether that stability will reach the shop floor, the factory, the farm, the trader and the entrepreneur.
That transmission will depend heavily on whether banks are willing to cut lending rates.
