Banks must reduce interest rates

The announcement last Monday of a reduction in the central bank’s policy rate from 22.5 to 21 per cent has sparked excitement among the public, especially corporate and retail customers of the various banks in the country.

This is because the policy rate is a major determinant in the calculation of banks’ interest rates. It is usually used as a benchmark because that is the rate at which the central bank lends to the universal banks.

The year-on-year inflation rate, as measured by the Consumer Price Index (CPI), stood at 12.1 per cent in June 2017, down by 0.5 percentage points from the 12.6 per cent recorded in May 2017. This rate of inflation for June is the percentage change in the CPI over the 12-month period from June 2016 to June 2017.

Again, the Treasury bill rate has consistently dropped from the beginning of the year as a result of a reduction in the government’s appetite for domestic borrowing. The 91-day Treasury bill rate used by the banks to determine their lending rates also eased by 417 basis points from January to 12.6 per cent on July 21.

From the beginning of the year to June 2017, the cedi recorded a depreciation of 3.7 per cent against the US dollar, compared with a depreciation of 3.3 per cent reported in June 2016.

Under normal circumstances, the universal banks are supposed to react to these favourable macroeconomic indicators to drop their interest rates to bring some relief to their customers.

However, the banks, which used to complain about the impact of worsening macroeconomic conditions on their pricing of loans, have suddenly shifted the goal post by mentioning other factors, apart from those indicated above, as the major reasons they are unable to drop the rates as expected.

For instance, some of the banks claim that most of the deposits they have in their possession were taken from their customers at fixed rates over a period, mostly not less than six months.

They further argue that based on that trend, they are unable to drop the interest rates now, as anticipated, because they have to wait for the investment to mature, after which they will renegotiate with their customers based on the developing macroeconomic trend.

The Daily Graphic finds this argument not only unfortunate but also porous, on the grounds that the banks are fond of using too many technicalities to justify their actions, particularly when it comes to interest rate computation.

This year, just like many other periods in the past, we witnessed the publication of huge profits by the banks at a time when many other sectors were recording losses.

The Daily Graphic believes that this is the time for the banks to contribute their quota to the development of the economy by offering lower rates to corporate and individual customers who need their funds to do business.

We are not in any way suggesting to the banks to drop their rates to make losses, as that too has implications for the economy. We are only asking them to balance the act in a manner that will ensure a win-win situation and result in the accelerated growth of the economy.

No matter how good the macroeconomic indicators look presently, high interest rates will not bring about economic growth and transformation.