The impact of monetary policy rate on the interbank market rate in Ghana

Abstract

This study examines the impact of the monetary policy rate (MPR) on the interbank market rate (INTB) in Ghana using monthly data from January 2000 to December 2024. Employing the Johansen cointegration test and Vector Error Correction Model (VECM), the study finds a stable long-run relationship between MPR and INTB, with the interbank rate adjusting to policy changes over time. However, short-run adjustments are sluggish, indicating inefficiencies in the transmission process. Market liquidity constraints, asymmetric information, and structural rigidities contribute to these delays. The findings suggest that while monetary policy remains an effective tool for influencing short-term market rates, enhancing interbank market efficiency is crucial for improving policy transmission. Policy recommendations include strengthening liquidity management, reducing market segmentation, improving policy signaling, and leveraging financial technology to enhance interbank rate responsiveness. These measures can improve the effectiveness of monetary policy in Ghana, ensuring better financial stability and economic growth.