The Centre for Economic and Business Research (CEBRE), has suggested capping of interest rates as a way to compel banks to reduce their interests on loans.
In less than two years, the Bank of Ghana has responded to the calls for the policy rate to come down by reducing it from 26% in November 2016 to 17% in May 2018.
However, commercial banks are yet to fully respond to the reduction.
Speaking to 3FM Business, executive director of CEBRE Newlove Asamoah says capping will create a framework for banks to measure their lending rates.
Earlier in a statement, the Centre pointed out: “CEBRE is of the view that much as it believes in competition to bring the lending rate down, it has failed to do so and hence regulatory whip would be required to ensure that the banks do not enjoy ride on the back of the Ghanaian borrowers. Hence we are calling on the Central bank to adopt some measures to compel the banks to reduce their interest rates.”
Find full statement below
The Centre for Economic and Business Research (CEBRE), a policy think tank based in Kumasi is calling on Bank of Ghana to as a matter of urgency urge the financial institutions (Banks) in the country to reduce their lending rates so as to make cost of borrowing less expensive and encourage more businesses to borrow more money to expand their businesses to boost the economy.
The Central bank has the function of among other things, regulating and supervising the banking industry and setting the official interest rate (policy rate) which is used to manage lending rate, inflation and the country’s exchange rate – and ensuring that this rate takes effect via a variety of policy mechanisms.
In less than two years, the Bank of Ghana has responded to the calls for the policy rate to come down by reducing it from 26% in November 2016 to 17% in May 2018. However, the banks have not reacted in a responsible manner by reducing their lending rates to trend. Businesses are still accessing loans at very high interest rates making cost of doing business very costly which also makes the Ghanaian private sector not-competitive.
CEBRE is of the view that much as it believes in competition to bring the lending rate down, it has failed to do so and hence regulatory whip would be required to ensure that the banks do not enjoy ride on the back of the Ghanaian borrowers. Hence we are calling on the Central bank to adopt some measures to compel the banks to reduce their interest rates. Among the measures that the Central bank can use are as follows:
- Interest rate capping/ceiling.
- The cap should be made in such a way that it will not affect the Central bank’s monetary policy. For example it could be set as “not more than 4 percentage point above the policy rate”. This will give room to the Central bank to adjust the policy rate upwards as and when the need arises for the Central bank to use its monetary policy to achieve its objectives.
- Government treasury bills/securities rates should be reduced further to make it unattractive to the banks so that the cap in interest rate does not lead to reduction in financial intermediation and a shift towards the purchase of government security by the banks.
Country | Current average rate (%) | Date | Highest rate (%) | Lowest rate (%) | ||
Ghana | 35.50 | Feb/18 | 42.84 | 21.24 | ||
Angola | 25.21 | Mar/18 | 25.21 | 14.46 | ||
Egypt | 19.30 | Mar/18 | 21.15 | 10.6 | ||
Tanzania | 16.47 | Mar/18 | 17.91 | 7.53 | ||
Kenya | 13.64 | Dec/17 | 32.28 | 9 | ||
South Africa | 10.00 | Apr/18 | 25.5 | 5.5 | ||
Mauritius | 8.50 | Feb/18 | 13 | 8 | ||
Botswana | 6.50 | Feb/18 | 16.5 | 6.5 | ||
Cote D’Voire | 4.50 | Apr/18 | 4.50 | 3.50 | ||
|
4.50 | Apr/18 | 4.50 | 3.50 | ||
Morocco | 2.25 | Apr/18 | 7 | 2.25 |