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Persistent drop of inflation to cause interest rates decline- BoG Governor

July 25, 2017, 10:20 a.m.

The Governor of the Bank of Ghana, Dr. Ernest Addison is hopeful banks in the country will eventually reduce their interest rates as inflation declines.

This follows calls from banks to reduce their cost of lending as the central bank reduces the policy rate.

Currently, inflation is at 12.1 percent as the policy rate stands at 21 percent.

Speaking yesterday after announcing the policy rate, Dr. Ernest Addison stressed that with time, the banks will decrease the interest rates as inflation declines.

“The lending rates are slow in coming down, but we think that with persistence, they will come down as we have seen in the past, a lot of that will depend on our ability to sustain the disinflation process,” he noted.

Dr. Addison explained that gradually, the banks will have no option but respond to the decrease in inflation as competition heightens.

He pointed out that the excuse given by the banks on non performing loans, and cost of operations will soon give way as the macroeconomic indicators trend down.

“Why do we have that stickiness with the lending rates. The first issue the banks will tell you is the average cost of funds, that the banks have long term deposits for which they have locked in higher cost, second argument from that stickiness is the level of the non-performing loans. We have 21 percent of non performing loans, which means that only 80 percent of the portfolio has to do the work. The third factor is the issue of operating cost of the banks. They invest in human resources, technology and many other things,” he reiterated.

Notwithstanding, Dr. Addison was hopeful that with a sound fiscal regime, the banks will be compelled by competition to drop the cost of borrowing.

He stated for example that the financial sector is getting more competitive as government intensifies efforts to deepen financial inclusion.

This, he maintained will push banks to design products that will improve the industry and inure to the benefit of consumers.