Editorial

INTEREST RATE AND ECONOMIC GROWTH IN GHANA

SINCE banking started in the then Gold Coast by the Bank of British West Africa and the Barclays Bank in 1920 interest rate make up the margins they make to run the business.

The Ghana Commercial Bank was established in 1953, to be followed by a host of other banks who continue to rely on interest rate to make reasonable profits.

In simple terms, interest rates are a percentage charged on borrowed money.

That is why interest rates have become one of the most important drivers of economies of countries globally in that it turns to set the pace for investment markets.

It is, therefore, not surprising that debate on interest rates and economic growth has often dominated public discussion anytime the economy of any country is being discussed.

In Ghana, discussions of the growth of the economy are done relative to the prevailing interest rates.

Indeed, increase in interest rates, according to economic experts, slows economic growth since it reduces the purchasing power, that is, consumers do not have enough money to meet their financial needs and besides, have less desire to borrow.

In order words, high interest rate for borrowers translate to high borrowing cost which discourages potential borrowers due to the fact that it leads to high production cost which have negative effect on returns.

It is, in the light of this that we welcome President Nana Addo Dankwa Akufo-Addo’s assurance that the government was focused on getting the interest rates charged by banks and other financial institutions to drop to a single digit.

According to him, the interest rates in the country were still high despite the marginal reduction in the past few years.

Speaking at a meeting with officials of the International Finance Corporation (IFC) in Accra on Monday, the President said a single digit interest rate would be “the single most decisive breakthrough for the private sector”.

In all honesty, interest rates in Ghana are still relatively high and the Ghanaian Times agrees with the President that the double digit interest rate must be reduced to a single digit.

In most advanced economies and the capital market, interest rates are not as high as in Ghana and that is why the private sector cannot borrow and expand their businesses.

We would encourage the government to clear all the bottlenecks that are militating against further reduction of the interest by the bank, so that financial institutions would have no excuse to reduce the lending rates.

We support the government in this endeavour and hope that the bank would respond and reduce the rate so that borrowing would be cheaper than it is now.

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