
Lending rates drop this week — As BoG slashes benchmark policy by 300bps
The era of high interest rates and its attendant impact on the cost of doing business is set to change as commercial banks will, by the end of this week, recalibrate their interest rate downward in response to the Bank of Ghana’s (BoG) policy rate cut.
The policy rate, which serves as the benchmark for determining the cost of credit in the economy, was cut by 300 basis points to 25 per cent last Wednesday, the biggest cut in its history and the central bank's first cut since September 2024 when it slashed the rate by 200 basis points.
Currently, average lending rates on the market hover around 20 to 23 per cent, depending on the institution and risk profile of borrowers.
However, the revision is anticipated to provide some relief to individuals and businesses, particularly in the small and medium-sized enterprise (SME) sector, which has long struggled with high borrowing costs.
Speaking to the Graphic Business, the Chief Executive Officer (CEO) of the Ghana Association of Banks (GAB), John Awuah, said the policy rate reduction was in line with the expectations of the banking community.
“Obviously, the policy rate was being used to fight inflation and given that it is successful and inflation is now at 13.7 per cent, it means that where it is, we need to now boost the economy by creating the avenue for affordable lending,” he stated.
“Obviously, the policy rate carries about 40 per cent weight in the variables that determine the Ghana Reference Rate,” he noted. “So by next Wednesday, August 6, 2025, the commercial banks are expected to publish the new GRR for August, and we should see quite a good reduction.”
He explained that the policy rate cut would reflect through the Ghana Reference Rate (GRR), prompting banks to respond accordingly.
“With the policy rates now reduced by 300 basis points, it will reflect through the Ghana reference rates and then banks will definitely respond accordingly.
So you can be certain that on Wednesday, when we publish the Ghana reference rate, you will see a significant reduction in the rates,” he stated.
Mr Awuah said that while the association had not completed its calibration, an indicative range of the new Ghana Reference Rate would be available by Wednesday, assuring that it would be significantly lower than current levels.
Market rate synchronisation
The banking association CEO emphasised that affordable lending was crucial for accelerated economic recovery and development, as it would enable the business community to access credit at reasonable rates.
However, he cautioned that the policy rate reduction alone was insufficient, calling for synchronisation of all market rates to achieve optimal results.
“Policy rate is now at 25 per cent and the open market operations rate is now around 9.5 per cent, treasury bill rate in 91 days is around 10, and they are not talking to each other.
We need the rate to properly synchronise so that the investor community will know that it is the market mechanism that is the force behind it,” he said.
Policy coordination
Meanwhile, an Economist and Professor of Finance at the University of Ghana Business School, Godfred Bokpin, commended BoG’s 300 basis points policy rate cut but emphasised the need for better coordination between fiscal and monetary policies to maximise the impact on economic recovery.
He said the rate reduction was a positive development aligned with the country’s economic turnaround story, although there were some disconnects in policy coordination.
“Even though it is a positive development in line with the economic turnaround story, there has to be some level of coordination and then also alignment in terms of the direction of the economy from both the fiscal side and the monetary side,” Prof. Bokpin told the Graphic Business.
He explained that while fiscal consolidation had led to significant reductions in government financing needs and inflation rates, the policy rate had remained elevated, creating what he termed a “disconnect.”
“We have also seen the inflation rate come down significantly. However, we’ve seen that the policy rate is still jacked up there and that creates a bit of a disconnect.
In a certain sense, it may suggest that the central bank is less optimistic about the recovery we are seeing,” he stated.
Prof. Bokpin revealed that economists had anticipated a more aggressive rate cut, though he expressed satisfaction with the central bank’s decision.
“We had expected a rate cut of up to 500 basis points, by our estimation. But I think the 300 basis points is also good to work with. Central banks all over the world are a bit more conservative,” he stated.
The economist projected further rate reductions in the future, particularly when inflation falls to around 10.5 per cent or below 11 per cent.
Limited impact
Despite the policy rate reduction, Prof. Bokpin cautioned that the impact on lending rates might be constrained by other monetary tightening measures in the system.
However, he highlighted several factors that could limit the effectiveness of the rate cut, including the tiered required reserve ratio based on loan-to-deposit ratios, with some banks maintaining required reserves of about 25 per cent.
“Beyond the policy rate, there are other monetary tightening environments that we also need to look at in order to make credit cheaply available to the private sector,” Prof. Bokpin added.