Ghana’s financial environment, for some months now, has been seeing a turnaround as it has recorded a consistent cut in the monetary policy rate, a significant factor in determining interest rates for loans.
However, the reduction in the monetary policy rate does not directly affect the interest rates. It must first pass through the Ghana Reference Rate (GRR). The GRR is computed with factors including the MPR, Treasury Bill Rate, Inflation Rate, and others.
The interest rate you normally receive on your loans from the banks is mostly the GRR plus your risk profile, profit margin, and other factors, depending on your bank.
As Ghana’s policy rate continues to take a nosedive, which is expected to reflect a reduction in the GRR, and hence, a reduction in the lending rate, one big question is echoing across the business community: Can banks simply ignore the Ghana Reference Rate (GRR) and charge high interest rates?
A Senior Finance Lecturer at the University of Ghana, Dr. Benjamin Amoah, says the answer is absolutely no. For Dr. Benjamin Amoah, any bank that attempts that path is digging its own grave since competition will not allow it.
Speaking to JoyNews in an interview monitored by The High Street Journal, Dr. Amoah explained that the GRR is more than just a figure published by the Bank of Ghana. It is the “industry-wide benchmark” that guides how banks price their loans.
He says the public should think of it as the starting point on the calculator every lender uses before adding their own margins based on risk and operational costs.
In today’s highly competitive banking market, Dr. Amoah says no bank can afford to pretend the GRR does not exist, especially at a time when it is expected to fall even further due to the recent policy rate cut.
He stressed that borrowers, whether big corporations or everyday businesses, are now more informed and will always compare a bank’s interest rate to the Ghana Reference Rate before deciding where to take a loan. He insists that if a bank sets rates wildly above the benchmark, customers will simply walk away.
“The Ghana Reference Rate is more or less the industry-wide rate. You can call it the starting point for pricing the credit facility. In a competitive environment, a bank cannot ignore the Ghana reference rate. This is an open market, and every single borrower would like to look at the Ghana reference rate to make an investment decision, either to invest or to borrow,” he explained.
He continued, “So it will be difficult for one to conclude that banks will just overlook, especially this period of significant decline in the rate, and go with the mindset that we are going to charge our own rate on the market.”
According to him, no lender wants to be the one struggling to sell loans because its rates are out of touch with market realities. Competition, he said, will force banks to conform, meaning that as the GRR drops, interest rates must respond.
“The market will force you to conform. So definitely, banks will be forced to reduce their rates. They can’t do anything about it. If not, competition will kick you out. In other words, you are going to have problems in selling loans. So definitely, banks will respond to the reduction in the rates,” he emphasized.
With Ghana’s Monetary Policy Committee recently slashing the policy rate, the key driver of the Ghana Reference Rate, analysts expect the benchmark rate to fall in the coming weeks. That means a potential easing in lending rates, offering some relief to struggling businesses and households.
The finance lecturer is assuring the business community that banks cannot ignore the Ghana Reference Rate, no matter how much they might want to protect their profit margins.
The market is watching, borrowers are comparing, and any lender that refuses to adjust will simply price itself out of business.
