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Interest Rates Remain Stable

Interest rates held steady by banks in the country, in the wake of monetary policy committee (MPC) to maintain the prime rate at 17%.

The prime rate is the rate at which the central bank does it overnight lending to commercial banks, which also serves as a benchmark for the banks in setting their respective base lending rates.

Year on year inflation has dropped to 17.9% at 12 month period ended September from 18.4% recorded at the end of June 2008.

According to the chairman of MPC Dr. Paul Acquah, the third quarter of 2008 has been significant shifts in preferences on the money market away from medium to long-term dated instruments, with falling average maturies.

These shifts have come along with significant realignments of interest rates on the money market.

At the end of September 2008, the share of the short-dated securities that is the 91 and 182 day instrument in the outstanding stock of government securities increased by 41.1% to 34.6% after declining progressively from a high of 56.2% in December 2005 to 20.5% in December 2007. The other instruments especially the 1-year note and 2-year fixed note shed 10.3% points and 4.1% points of their share respectively.

The benchmark 91-day treasury bill rate increased to 24.58% in the third quarter from 16.32% in the second quarter. The 182-day treasury bill rate similarly rose sharply in the third quarter to 26.04%, continuing rate uptrend from the first quarter. The 1-year note and the 2-year fixed rate note followed similar patterns, ending at 20% and 21% respectively.

The over night inter-bank rate similarly firmed-up significantly by 504 basis points in the third quarter to 19.52%.

Average base rate quotations of the banks were recorded upward by 337 basis points to 25.63% in the third quarter in the range of 19.5% to 27.8%, on top of the 258 basis points revision in the second quarter of 2008.

Similarly, average lending rates were revised upward by 202 basis points in the third quarter to 26.38% within the range of 15% to 34.0%

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