Abstract
Using a series of econometric techniques, the study analysed interaction between monetary policy and private sector credit in Ghana. This study made use of monthly dataset spanning January 1999 to December 2019 of credit to the private sector (PSC) and broad money supply (M2). The results reveal that there exists cointegration, a long run stationary relation between monetary policy and private sector credit. This implies, increases in credit should prompt long-term increases in monetary policy. It is not surprising that growth in the private sector might have a stronger effect on monetary policy. The Error Correction Test is statistically significant and that all the variables demonstrate similar adjustment speeds. This implies that in the short run, both money supply and credit are somewhat equally responsive to their last period’s equilibrium error. There is unidirectional causation from private sector credit to monetary policy. It can be said that, there is an interaction between money supply and private sector credit. Thus, credit to private sector holds great potential in promoting economic growth. It can be recommended to the government to increase the credit flow to the private sector because of its strategic importance in creating and generating growth of the economy.
Highlights
Banking industry is the vital part in any economy because it plays an important role in mobilizing savings from surplus to deficit unit to stream economic activities of the country which propel its economic growth
Profitability is measured by return on assets (ROA) and Return on Equity (ROE) which may be significantly influenced by the internal factors such as Interest Rate Spread (IRS), Net interest margin (NIM), capital adequacy ratio (CAR), Credit Risk (CR), Deposit Growth (DG), Loan to Deposit Ratio (LD), Cost to Income Ratio (CTI) and SIZE of the bank
Similar trend found in ROE, NIM, LD and CTI where as IRS, CA, and Size are comparatively stable among the segments
Summary
Banking industry is the vital part in any economy because it plays an important role in mobilizing savings from surplus to deficit unit to stream economic activities of the country which propel its economic growth. Mujeri and Younus (2009) asserted that for enhancing economic growth, an important prerequisite is to ensure the required flow of saving into productive investments which depends on the development of appropriate financial institutions banks that are capable of generating adequate quantity and quality of investment. To make the industry effective and efficient as well as to provide better financial service to the citizen, a number of commercial banks licensed time to time which are operating according to the bank company act 1991. The industry has exaggerate number of banks and sometimes these numbers may affect profitability and cause to be over competitive even inefficient the industry as Mexico has only 47 commercial banks with 7.4 times larger GDP and 13.2 time larger surface area of Bangladesh in 2016 (Khatun et al, 2018)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: International Journal of Economics and Financial Research
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
