The Governor of the Bank of Ghana, Dr Ernest Addison has expressed optimism that banks in the country will eventually reduce their interest rates as inflation declines.
He was speaking after announcing the monetary policy rate on Monday (July 24, 2017) in Accra.
He explained that as inflation declines, the banks will reduce their interest rates with time.
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“The lending rates are slow in coming down, but we think that with persistence, they will come down as we have seen in the past, a lot of that will depend on our ability to sustain the disinflation process,” he noted.
He said the excuse given by the banks on non-performing loans, and cost of operations will soon give way as the macro economic indicators decline.
“Why do we have that stickiness with the lending rates? The first issue the banks will tell you is the average cost of funds that the banks have long term deposits for which they have locked in higher cost, the second argument from that stickiness is the level of the non-performing loans. We have 21 percent of non-performing loans, which means that only 80 percent of the portfolio has to do the work. The third factor is the issue of operating cost of the banks. They invest in human resources, technology and many other things,” he reiterated.
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However, he was optimistic the banks will gradually have no option than to respond to the decrease in inflation as competition heightens.
His comments come on the back of calls from banks to reduce their cost of lending as the central bank reduces the policy rate.
Currently, inflation is at 12.1 percent as the policy rate stands at 21 percent.
Dr Addison said other factors being implemented by the government and the BoG will cause the banks to reduce their interest rate.