The Ghana Reference Rate (GRR) experienced a slight decrease for the month of June, dropping from 29.66% in May to 29.44%, a reduction of only 22 basis points. This minimal drop is attributed to a consistent marginal reduction in the 91-day treasury bill rate.
The GRR serves as the base rate upon which banks add risk and profit margins to determine the interest rates they charge on loans. Typically, an increase in the GRR leads to higher loan interest rates, and a decrease leads to lower rates. However, when the change is as marginal as this, it rarely impacts loan interest rates significantly.
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Three key factors are considered in setting the GRR:
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- the monetary policy rate set by the Bank of Ghana.
- the interbank lending rate.
- and the 91-day treasury bill rate.
Among these, only the 91-day treasury bill rate has seen a reduction, dropping from 25.54% at the end of April to 25.09% at the end of May, a decrease of 45 basis points. Meanwhile, the monetary policy rate has remained steady at 29%, and the interbank lending rate has held at 28.74%.
Lending to the private sector remains prohibitively expensive. The Central Bank reported the average lending rate at 31.25% at the end of April, with some reports suggesting rates could be as high as 50%, making many businesses uncompetitive.
According to the Bank of Ghana, growth in private-sector credit continues to be weak.
“Private sector credit growth slowed to 10.8 percent in April 2024 from 19.8 percent in April 2023. In real terms, credit to the private sector contracted by 11.4 percent relative to a 15.2 percent contraction recorded over the same comparative period,” the Central Bank stated in its latest Monetary Policy Committee report.
The Central Bank hopes that its March adjustments to the Cash Reserve Ratio for banks, which aim to incentivise more lending to the private sector, will eventually lead to an increase in credit availability for businesses.
