Reducing the cost of credit: BoG urged to cap commercial bank interest rates

With rising money market interest rates, the Bank of Ghana has been urged to cap commercial bank interest rates to further reduce the cost of borrowing in the country, Chief Financial Officer Dr. Williams Pepra.

This proposal has always been suggested by the Institute of Economic Affairs.

Dr Peprah also wants the Central Bank to cap banks’ investments in government securities to free up space for companies to borrow.

Speaking to Joy Business, Dr Peprah said commercial banks should be compelled to lend to the real sector of the economy at reasonable rates.

“Already, we have 50% of our graduates who are unemployed because there is a lack of liquidity in the country. And what we can do as a country to remedy this situation, in my opinion, we should cap the operations of commercial banks in terms of interest and profits that they generate.

“I know that commercial banks need to increase their shareholders’ net worth by charging more interest, but we should be able to push our commercial banks to focus on lending to industries. So I will recommend that central banks advise that wallets commercial banks are examined.

He again advised the government to reduce its borrowing from the domestic market to enable businesses to access funds to expand.

“Government needs a lot of money to operate and what government is doing and what is happening is accepting higher interest rates so they can entice investors to invest in government bonds. But the impact of this situation is that it will increase the cost of doing business in the country, especially with regard to the cost of production. Also, you see banks not giving money to production entities, but rather investing in government bonds.

“The government must reduce its borrowing. It needs to find innovative ways to increase income to alleviate the cost of credit,” added Dr Peprah.

Interest rates are starting to rise

Interest rates have started to rise, but only marginally, as challenges in the fiscal economy trickle down to the monetary economy.

According to the latest treasury bill auction results from the Bank of Ghana, interest rates on short-term financial instruments have increased slightly.

Despite the government’s stance to keep interest rates low, it has now been forced to revise its rating by accepting a slightly higher yield for short-term financial instruments.

Auction results indicated that interest charges increased by about 0.20% for 91-day and 182-day Treasury bills.

The government, however, got just over ¢1.511 billion, but accepted ¢1.508 billion from the sale of the treasury bills.