Ghana’s benchmark interest rate has fallen sharply in 2025, but new Bank of Ghana data shows lending rates have not declined at the same pace, keeping borrowing costs relatively high for businesses and households.
Between January and October this year, the Ghana Reference Rate declined from 29.72 percent to 17.86 percent, a reduction of 11.86 percentage points representing a fall of about 39.9 percent. Over the same period, the Average Lending Rate declined from 30.07 percent to 22.22 percent, a reduction of 7.85 percentage points equivalent to about 26.1 percent.
The figures show that although both rates are falling, the benchmark rate is declining much faster than the rate borrowers actually pay. This gap means many businesses and households have not felt the full benefit of monetary policy easing despite expectations that borrowing would become cheaper.
The Ghana Reference Rate is the guiding rate used by all banks in Ghana when pricing loans. According to the Bank of Ghana, it serves as a transparent benchmark for borrowers and is calculated using three key interest rates in the financial system: the 91-day Treasury bill rate, the Monetary Policy Rate set by the Bank of Ghana, and the interbank overnight lending rate.
The Treasury bill rate reflects how much the government pays to borrow in the short term. The Monetary Policy Rate shows the central bank’s policy direction on interest rates. The interbank rate reflects how cheaply banks lend to one another. By averaging these three rates, the Ghana Reference Rate provides a benchmark that all banks refer to when determining loan prices.
When the Ghana Reference Rate goes down, it signals that borrowing conditions in the economy are easing and loans should eventually become cheaper. However, the Average Lending Rate, which represents the mean of lending rates charged by banks, does not imply that all borrowers access credit at the same rate, the Bank of Ghana notes.
This means some borrowers pay less than the average, while others, especially individuals and small businesses considered risky, may pay much more. This distinction explains why many borrowers have not felt the full benefit of the sharp fall in the reference rate.
While banks start loan pricing from the Ghana Reference Rate, they add extra charges based on risk, borrower profile, collateral and profit margins. As a result, lending rates tend to fall more slowly than benchmark rates, creating what economists describe as a lag effect.
The lag effect refers to the time it takes for changes in policy and benchmark rates to fully reflect in lending rates. The Bank of Ghana has acknowledged in its monetary policy communications that lending rates respond gradually due to credit risk considerations and the structure of banks’ funding costs.
For Ghanaian businesses, particularly small and medium-sized enterprises, the slow decline in lending rates remains a major concern. High borrowing costs limit investment, expansion and job creation. For households, expensive loans make it difficult to access mortgages, personal loans and other forms of credit, even as inflation shows signs of easing.
The wider economy also feels the impact. Lower lending rates are expected to reduce production costs, support private sector growth and eventually ease the cost of goods and services. When lending rates do not respond quickly to falling benchmark rates, these benefits are delayed, limiting the transmission of monetary policy to the real economy.
The gap between benchmark and lending rates has implications for monetary policy effectiveness. Central banks reduce policy rates to stimulate economic activity by making credit cheaper and encouraging borrowing for investment and consumption. When commercial banks do not pass on rate cuts quickly, the intended economic stimulus is weakened.
Banks justify slower adjustments by pointing to credit risk, non-performing loans and funding costs that do not fall as quickly as policy rates. They argue that lending rates must account for the actual risk of default and the cost of mobilising deposits, which may remain elevated even when benchmark rates decline.
However, borrowers and business groups have consistently called for faster transmission of policy rate cuts to lending rates. They argue that the current gap undermines efforts to revive private sector activity and makes Ghana less competitive compared to countries where lending rates track policy rates more closely.
As the year comes to an end, borrowers will be watching closely to see whether banks allow the continued decline in the Ghana Reference Rate to reflect more strongly in lending rates. A faster adjustment would make credit more affordable, support economic activity and improve household welfare.
For now, the data shows a clear divergence. Ghana’s benchmark rate has fallen by almost 40 percent while lending rates have fallen by only about 26 percent. Until that gap narrows further, the promise of cheaper borrowing will remain only partially fulfilled for many Ghanaians seeking credit to expand businesses, purchase homes or meet other financial needs.
The Bank of Ghana continues to monitor the transmission of monetary policy to lending rates as part of its mandate to ensure price stability and support economic growth. How quickly commercial banks adjust their lending rates in response to further benchmark rate declines will determine whether monetary policy easing translates into tangible relief for borrowers.