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Banks slash base rate further

By Kofi AHOVI
Universal banks continue to slash down their base lending rates, in response to the reduction in the Bank of Ghana (BoG) policy rate which was reduced by 100 basis points from 16% to 15% in April, this year.

The latest bank to further reduce its base rate was the Ghana Commercial Bank (GCB), which reduced its rate by 4.25%, the highest cut so far from to 27% to 22.75%. The reduction makes GCB the bank with the lowest rates, compared with SG-SSB’s rate of 25%.

The policy rate, which serves as a benchmark, is the rate at which the central bank does overnight lending to universal banks in the country.
It serves as a basis for the banks in setting their respective base lending rates, as well as lend to their most favoured customers.

More banks are expected to further reduce their base lending rate in the coming weeks.
Institutions such as the Association of Ghana Industry (AGI) and the Private Enterprise Foundation (PEF) see the reduction as boost to production, as they have consistently complained about the relatively high interest rates, despite the consistent decline in the central bank’s policy rate over the past years.

Interest rates have generally declined along the full spectrum of the yield curve - 8.7 percentage points on the lower end and 4 percentage points at the higher end - since December 2009.

Between December 2009 and mid-April 2010, the benchmark 91-day treasury bill rate went down by 8.7 percentage points to 13.9%. Similarly, the 182-day treasury bill rate declined by 11% to 14.4%.

Average base rates of the banks were revised downward, after the previous policy rate cut, by 200 basis points in February this year, into the range of 24.7 – 32.0%, with an industry average of 29.9%.

Similarly, average lending rates were revised downward by 0.61 percentage points to 32.1% into the range 23.6 –39.9%.

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