High Interest Rates in Ghana, A Critical Analysis

The question of high interest rates in Ghana is examined in this paper. The author notes that high interest rates have not only kept the cost of credit unnecessarily high, but have also discouraged many otherwise viable projects from being implemented. The problem of high interest rates are blamed on the following factors. 1)The structural weaknesses and inefficiency in the banking system that prevent rapid transmission of lower interest rates to borrowing customers. 2)Perceived risks of lending, incl macroeconomic instability of credit related information on borrowers. Dr Kwakye stresses the importance of macroeconomic stability underpinned by fiscal discipline. He underscores the need for increased competition, improved efficiency and lower operational costs in the banking industry while also addressing risks associated with borrowers. Finally, the author recommends that the monetary authorities should: 1)impose a cap on banks' lending deposit rate spread 2)Consider reducing the primary reserve requirement or pay a token return on them to reduce banks' cost of funds.