Macroeconomic determinants of lending rates in Ghana

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August, 2016
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Lending is considered one of the fundamental functions of banks. Loans and advances which may be on long term, medium or short term basis are given to individuals, businesses or even the government to enable them indulge in productive investments and development activities to boost economic activities. Thus, the lending activities can help expand the economy and ultimately promote economic growth and development. The study sought to investigate impact of the Monetary Policy Rate, Financial Development (measured by the ratio of credit to the private sector), inflation and Trade Openness on the lending rate in Ghana. Annual time series data from 1980 to 2015 and the ARDL econometric technique was employed for the study. The study found that the Monetary Policy rate and inflation had a significant positive influence on lending rates in both the short and long run. Financial Development on the other hand, influenced lending rates positively in the short run but negatively in the long run. The study thus recommends policies by monetary authorities to stabilize the MPR and prices in the vain to stabilize the lending rate.
A Thesis submitted to the Department of Economics of the College of Social Sciences and Humanities, Kwame Nkrumah University of Science and Technology, in partial fulfillment of the requirement for the award of Master of Science Degree in Economics