Abstract:
The relationship between inflation and interest rate is of interest to many economy planners. The
objective of this paper is to establish the relationship between interest rate and inflation in Ghana.
Using monthly data for the period January 2003 to December 2013, this paper employ time series
techniques, namely unit root tests, cointegration test and Granger causality to the data. The unit root
test showed that both interest rate and inflation are non-stationary at the levels of the process but
stationary at first difference. Again, the cointegration analysis revealed that there is exist
cointegration among inflation and interest rate for the period under study and that interest rate
causes inflation but the converse is not true. The paper recommends that managers of the Ghanaian
economy should focus more on regulating the conduct of commercial banks in terms of managing the
interest rates commercial banks set since it has be found that the interest rate drives inflation more
than inflation driving interest rate
