Osafo-Maafo advises commercial banks to reduce lending rates

Accra, Nov 4, GNA- Finance Minister, Mr Yaw Osafo-Maafo on Tuesday urged the country's commercial banks to respond positively to the fall in the rate of inflation by lowering their lending rates.

He said the spread between deposit and lending rates was unacceptably high and that the banks needed to move their rates downward in line with the falling Treasury bill rates as well as the central bank's prime rate.

Interest rates on the money markets are on the downward path with the benchmark 91-day Treasury bill rate declining from 34 per cent in June to 25 per cent at the end of September this year.

Interbank money market rates went down during the period from 27 per cent in June to 25 per cent at the end of September while the Bank of Ghana has brought down the prime rate to 24 per cent. Mr Yaw Osafo-Maafo said despite these positive developments, commercial banks lending rates had not responded, remaining broadly unchanged.

"We expect the commercial banks to respond, as some have begun, to the downward trend in Treasury bill rates as well as the central bank's prime rate, and reduce their lending rates accordingly." The Minister was giving a review of the performance of the economy in 2003 in Parliament.

He said the growth in monetary aggregates has continued to slow down with the year-on-year growth in reserve money declining from 42.6 per cent in December 2002 to 32.4 per cent as at the end of September this year.

Similarly the growth in broad money had also slowed down, falling from 50 per cent in December last year compared to 39.5 per cent in July this year.

Mr Yaw Osafo-Maafo said more people are investing now in government securities with long maturity period than in the short term ones.

He said the share of 91-day Treasury Bills declined from 53 per cent in June to 49 per cent in August while the shares of 182-day and one year Treasury Bills increased from 29 per cent and five per cent to 31.5 and 6.5 per cent respectively by the end of August.

The Minister said non-bank private sector have increased its holdings in government securities while the banking system had reduced its holdings of government securities from 55 per cent in March last year to 43.5 per cent in August this year.