Analysis of Demand for Credit and Interest Rate in Ghana
Promise Orlando Quashigah *
Department of Economics, University of Cape Coast, Ghana
Nicholas Kwabla Kwashigah
Fidelity Bank, Ghana
*Author to whom correspondence should be addressed.
Abstract
The paper investigates the relationship between interest rates and demand for credit in Ghana.
The paper uses time series data covering the period 1965 to 2010 and adopt the Johansen cointegration to examine the relationship between interest rate and demand for credit. The results suggest that interest rates have a negative impact on the demand for credit in both the short run and the long run. An increase in the real lending rate may not immediately prevent the demand for credit but it may result in a fall in the demand for credit in both the short run and long run. This implies that if forces of market tend to put an upward pressure on prices, authorities should take advantage of it and make more credit available. Again, authorities should emphasis on stability of price in order to reverse the negative short run or negative long run effect between the real lending rate and demand for credit.
Keywords: Domestic demand for credit, lending rate, consumer price index and money supply