The impact of interest rate on the demand for credit in Ghana

This article investigates the impact of financial liberalization on the demand for credit in Ghana. It contributes by making suggestions pertaining to questions on the effectiveness of interest rate liberalization in driving private sector demand for credit both in the short and the long-run, as well as the speed of adjustments to equilibrium after the implementation of the financial liberalization programme. The study results indicate that interest rate has no significant impact on the demand for credit both in the short-run and long-run. Moreover, inflation has a negative significant effect on the demand for credit in the short-run. The results also suggest that about 66% of disequilibrium from the preceding year is corrected in the current year. However, these findings seem to indicates that the financial market in Ghana is not fully competitive. The oligopolistic and noncompetitive financial system may be attributable to the extreme minimum capital requirement and the emerging consolidation of commercial banks through government takeovers as well as the various credit rationing practices by banks aimed at reducing the risk of adverse selection and insolvency. © 2020 John Wiley & Sons, Ltd