Business News of Friday, 7 November 2014

Source: Daily Guide

Struggle for deposits keeping interest rates high

Some analyst have attributed the high interest rate in the country to the stiff competition for deposit from the public by numerous financial institutions despite the recent rebound of the Ghana cedi

Ghana currently boasts of 28 commercial banks, 80 asset management and investment advisory firms, over 500 microfinance establishments and numerous finance houses.

All these institutions are hungry for deposits and have employed all manner of tactics to meet their targets.

Analysts say the slight stability experienced by the Ghana cedi in recent times has still not been able to effect a change in interest rates because Government has not relented in its efforts at borrowing huge sums of money in the economy, thus succeeding in crowding out activities of the country’s private sector.

Inflation (currently at 16.5 percent) and Government’s unnecessary borrowing are also factors affecting efforts at reducing interest rates in the country.

However, Government has tried to increase interest rates on its borrowing instruments just to realise some investment.

Recently, Government was paying 25.75 percent per annum on the 91-day Treasury bill translating into close to 26 pesewas on every cedi it has borrowed.

Since August, this year, the local currency has gained strength following the review of the country’s foreign exchange regulations by the Bank of Ghana (BoG), but the interest rates have remained constant.

Experts have advised Government to relax its rate of borrowing and broaden the tax net to cover individuals as well as Small and Medium-sized Enterprises (SMEs) that have up to date not been covered by the Ghana Revenue Authority (GRA).