Government wants interest rates standardised

Government wants interest rates standardised
Source: Ghana| Myjoyonline.com | Naa Sakwaba Akwa | E: faustine.akwa@myjoyonline.com
Date: 31-07-2018 Time: 01:07:26:pm
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The Senior Minister, Osafo Maafo says the rate at which commercial banks lend to customers will soon be standardised.

He said the situation where banks charge different rates is not allowing businesses to operate competitively, something the government intends to address.

Speaking at the Graphic Business/Stanbic Breakfast Meeting in Accra, the Minister says the Bank of Ghana is working to put in place measures to bring down the cost of borrowing.

“Cote d’Ivoire and Togo are in the same zone and their interest rate is 4.5 to 5 percent. So immediately our producers have a problem of cost. The financial cost of their operation is too high, it is not competitive. If they are going to sell their products in Nigeria and they are borrowing at 4.5 percent and you are borrowing at 25 percent, then you have a problem.

“And therefore the central bank is putting in place measures to bring down the cost of borrowing. That arbitrariness of bankers setting their own interest rates will soon be history because elsewhere in the world, interest rate is determined by certain agreed formula within the banking fraternity,” he added.

Currently, lending rates are at an average of 27.5 percent, slightly lower than the 30 percent plus a year ago.


source: tradingeconomics.com

While this is encouraging, many, especially private sector players, believe there is still room for lower lending rates.

With the BoG policy rate at 17 percent, Treasury bill rates at 13.2 percent and inflation at a historic 9.6 percent, the fundamentals are ripe for a downward trend in lending rates.

Mr Maafo is confident of this. He said the current rate is encouraging and should continue to drop.

But the government’s desire to push the private sector will come to nothing if they cannot compete with other businesses in the sub-region.

Interest rates are therefore crucial in achieving profitability in the private sector because they cannot compete if they are going to borrow at the current rates.

Infographic interest rate

Citing London’s example, where banks adhere to the London Inter-bank Offered Rate (LIBOR), Mr Maafo said the same situation can be replicated here.

They say LIBOR plus two percent…everybody knows LIBOR is a constant figure at any point in time so if you’re adding two to eight, it can be 10 and nothing more.

“So the Bank of Ghana is working such that the prime rate will be the interest rate prevailing and every bank will be forced to use that interest rate because it is determined within the banking industry,” he stressed.

This he believes will bring down the cost of money so that manufacturing will be impacted positively.

For him, the move is the only way manufacturing will exist because “if we allow these policies to be haywire it will not work. We must create the macro environment to promote manufacturing and this government is doing exactly that.”

 


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