Dynamics of Interest Rate Pass-Through in Ghana

Abstract

This study examines the dynamics of interest rate pass-through in Ghana since Bank of Ghana opted for inflation targeting monetary policy framework in accordance with the legislative instrument governing the institution. Time series data (policy rate, lending rate, deposit rate, interbank rate and Treasury bill rate) sourced from Bank of Ghana were analyzed using an error correction model. Per the estimation results, policy rate has an incomplete influence on wholesale market rates and retail rates both in the short and long-run. Despite the incompleteness, lending rates and interbank rates respond relatively strongly to policy rate changes in the short run. In view of the objective to determine the influence of wholesale market rates on retail rates, results also indicated an incomplete pass-through for both lending rates and deposit rates. Lending rates however respond relatively strongly to wholesale market changes than deposit rates.