The Impact of Monetary Policy on Interest Rate Pass – Through Among Commercial Banks in Ghana

Abstract

The study explored the impact of monetary policy rate on interest rate pass-through in Ghana using the Autoregressive Distributed Lagged Model (ARDL) for the period 2003 to 2018. To achieve these objectives, time series data was obtained from Bank of Ghana’s database and analysed using the ARDL estimation techniques. A significant long run cointegrating relationship was found between MPR and wholesale market rate (WMR) as well as deposit rate. Also, IRPT between MPR and WMRs, as well as deposit rate in the long run was found to be incomplete, and over pass-through to lending rate. A steady long run relationship was also found between WMRs and retail rates. In view of the objective to determine the influence of WMRs on retail rates, results further indicated an incomplete pass-through for both retail market rates (lending rates and deposit rates). Despite the incompleteness, lending rates and interbank rates respond relatively strongly to MPR changes in the short run. Lending rates however respond relatively strongly to WMR changes than deposit rates. The study advised government to free the credit and deposit markets in order to incentivize borrowers and private investors to save and/or lend money that could facilitate the free flow of money among the formal and informal sectors in the country. The study further recommends further interventions in the monetary policy transmission process to help augment the existing policy structures to strengthen the long-term relationship between the various interest rate channels.