Abstract:
Ghana's macro-financial story from 2020 to 2025 shows a clear and direct link between inflation and the cost of credit. When inflation went up, lending rates went up too, and when inflation went down, lending rates went down. The lessons from this period are straightforward; when inflation becomes unanchored, the policy rate, the Ghana reference rate and market rates rise sharply, making credit expensive. Conversely, when inflation stabilizes, financing conditions improve and credit becomes more affordable. Creating an affordable credit market and sustaining its positive turns therefore requires deliberate action from both the banking sector and policymakers. It is therefore crucial for banks to strengthen their riskbased pricing frameworks, enhance credit assessments, and extend more lending toward productive sectors such as agriculture and manufacturing, especially now that inflation and interest rates are cooling. For the managers of the economy, the priority must be to maintain macroeconomic stability without compromise. Disciplined fiscal management, credible inflation targeting, and consistent exchange-rate stability are essential to preventing another 2022-style spike in inflation and borrowing costs. Together, these actions will ensure that the ongoing decline in inflation translates into sustained reductions in the cost of credit, a healthier banking system, and a more resilient macro-financial environment for Ghana.
