Borrowing in Ghana could become cheaper this month as the Ghana Reference Rate (GRR) has seen a sharp decline, dropping from 27.9% in March to 23.99% in April. This nearly 400 basis point drop (391 points) is the largest single-month decrease in recent times and could bring relief to businesses and individuals seeking loans.
What This Means for Borrowers
With the GRR acting as a benchmark for lending rates, its drop is expected to lead to lower borrowing costs. The average lending rate, which currently hovers around 30%, may decrease, making loans more affordable for businesses and individuals.
Since the cost of credit is a major factor in high production costs, a reduction in lending rates could help businesses cut expenses, boost investments, and stimulate economic activity. However, the impact will be more pronounced for new loans, as existing loans often have fixed interest rates. Some flexible loan agreements may also see slight reductions in interest rates.
Why the GRR Dropped
The GRR is influenced by three key factors:
- 91-day Treasury Bill Rate
- Interbank Market Rate
- Bank of Ghana’s Policy Rate
The most significant factor behind this sharp decline is the plunge in 91-day Treasury Bill rates, which have fallen by over 1,260 basis points from 28.33% in mid-January to 15.71% at the end of March. This steep drop has driven down the GRR.
However, the Bank of Ghana’s policy rate increased by 100 basis points (from 27% to 28%) last month, preventing an even lower GRR for April.
Looking Ahead
If Treasury Bill rates continue to decline and the policy rate remains stable or drops, borrowing costs could further decrease in the coming months, bringing much-needed relief to businesses and consumers. However, the Central Bank is concerned that drops in treasury bill rates could drive investors to rather buy dollars, which could push up demand for the foreign currency and cause the cedi to depreciate further.
