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Business News of Wednesday, 4 April 2018

Source: citifmonline.com

BoG puts reference rate for April at 16.82%

The Bank of Ghana has pegged the Ghana Reference Rate for April 2018 at 16.82%.

This means that all commercial banks will determine their interest rates on their loans with the figure as their reference.

The new system also follows the central bank’s decision to review the previous Base Rate model which adopted a minimum lending rate for all banks.

A statement from the Bank of Ghana and copied to Citi Business News said, “The Bank of Ghana in consultation with the Ghana Association of Bankers reconstituted a Working Group to review the existing base rate model and develop a new framework for base rate determination.”

According to the central bank, “The objective of the review among others is to fulfill its commitment to move towards a more market based model of base rate setting, in the medium to long term.”

By the application of the new reference rate model, a bank shall price its flexible and fixed term loans by adding or subtracting its risk premium to the Ghana Reference Rate.

Meanwhile flexible or floating term loan for any tenure granted by a bank from the implementation period will reset after each month’s publication of the GRR.

Fixed term loan rates granted by a bank in its normal course of business from the implementation date will however run until maturity.

The relative high lending rates has been cited as a contributory factor for the rising Non Performing Loans among commercial banks in Ghana.

Even though the Monetary Policy Committee (MPC) of the Bank of Ghana has been reducing its policy rate for some time now, it is yet to significantly reflect in the lending rates of commercial banks.

Currently, the policy rate is at 18 percent.

But the latest average lending rates among commercial banks is at 24.5 percent as at February 2018.