Editorial: Conditions ripe for lowering borrowing costs!

The country’s high lending rates remain a drag on private sector growth even though recent cedi gains and easing inflation have created room for lower borrowing costs, an economist at the University of Ghana Business School, Professor Godfred Bokpin, said at the Prudential Bank’s Cedi Appreciation Seminar in Accra last week.

He cautioned that the persistence of double-digit interest rates risks stifling business expansion.

Lending rates charged by commercial banks currently range from about 16 percent to nearly 25 percent, with some institutions offering loans as low as 12 percent. This marks progress from the 32 percent peak recorded in 2020, but Bokpin said the spread between the policy rate and market lending rates highlights inefficiencies in the financial system.

“The gap between a 25 percent policy rate and lending rates of almost 30 percent is too wide,” he said. “It represents inefficiency and is a cost in the system that must be addressed.”

This notwithstanding, Prof. Bokpin commended the Bank of Ghana and Finance Ministry for fiscal and monetary coordination that has pushed inflation down sharply.

Consumer prices have eased from above 50 percent in early 2023 to the low 12.1percent range this year, with projections of single-digit inflation by early 2026. However, he stressed that macroeconomic stability should not be seen as an end in itself.

The professor warned that keeping interest rates elevated for too long could undermine competitiveness and job creation. He pointed to Kenya, where businesses borrow at around 10 percent, as a contrast to Ghana’s environment.

“We are denying private capital the opportunity to expand and employ,” he noted.

The economist additionally noted that while cedi stability is welcome, the pace of appreciation has caused disruptions for businesses reliant on predictable exchange rate movements.

Prof. Bokpin urged policymakers to ensure that gains from fiscal prudence, disinflation and currency stability are translated into affordable financing for businesses.

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