Ghana’s benchmark interest rate, which guides how banks price loans, has fallen sharply this year, raising expectations that borrowing would become cheaper for businesses and households. However, new data from the Bank of Ghana shows that while the Ghana Reference Rate has dropped significantly, the average rate at which banks lend to customers has not fallen at the same pace, keeping the cost of credit relatively high for many borrowers.
Between January and October this year, the Ghana Reference Rate declined from 29.72 percent to 17.86 percent. This is a reduction of 11.86 percentage points, representing a fall of about 39.9 percent. Over the same period, the Average Lending Rate declined from 30.07 percent to 22.22 percent. That is a reduction of 7.85 percentage points, equivalent to about 26.1 percent. The figures show that although both rates are falling, the benchmark rate is declining much faster than the rate borrowers actually pay.
To understand why this matters, it is important to first understand what these two rates mean.
The Ghana Reference Rate is the guiding rate used by all banks in Ghana when pricing loans. The Bank of Ghana explains that “the Ghana Reference Rate is a base rate for pricing loans by banks and serves as a transparent benchmark for borrowers” . It is calculated using three key interest rates in the financial system. These are the 91-day Treasury bill rate, the Monetary Policy Rate set by the Bank of Ghana, and the interbank overnight lending rate.
The Treasury bill rate reflects how much the government pays to borrow in the short term. The Monetary Policy Rate shows the central bank’s policy direction on interest rates. The interbank rate reflects how cheaply banks lend to one another. By averaging these three rates, the Ghana Reference Rate provides a benchmark that all banks refer to when determining loan prices.
In simple terms, when the Ghana Reference Rate goes down, it signals that borrowing conditions in the economy are easing and loans should eventually become cheaper.
The Average Lending Rate, however, is different. It is the average rate at which banks actually lend to customers. The Bank of Ghana notes that the average lending rate “represents the mean of lending rates charged by banks and does not imply that all borrowers access credit at the same rate”. This means some borrowers pay less than the average, while others, especially individuals and small businesses considered risky, may pay much more.
This distinction explains why many borrowers have not felt the full benefit of the sharp fall in the reference rate. While banks start loan pricing from the Ghana Reference Rate, they add extra charges based on risk, borrower profile, collateral, and profit margins. As a result, lending rates tend to fall more slowly.
Economists describe this delayed adjustment as a lag effect. It refers to the time it takes for changes in policy and benchmark rates to fully reflect in lending rates. The Bank of Ghana has acknowledged in its monetary policy communications that lending rates respond gradually due to credit risk considerations and the structure of banks’ funding costs.
For Ghanaian businesses, particularly small and medium-sized enterprises, the slow decline in lending rates remains a major concern. High borrowing costs limit investment, expansion, and job creation. For households, expensive loans make it difficult to access mortgages, personal loans, and other forms of credit, even as inflation shows signs of easing.
The wider economy also feels the impact. Lower lending rates are expected to reduce production costs, support private sector growth, and eventually ease the cost of goods and services. When lending rates do not respond quickly to falling benchmark rates, these benefits are delayed.
As the year comes to an end, borrowers will be watching closely to see whether banks allow the continued decline in the Ghana Reference Rate to reflect more strongly in lending rates. A faster adjustment would make credit more affordable, support economic activity, and improve household welfare.
For now, the data is clear and factual. Ghana’s benchmark rate has fallen by almost 40 percent. Lending rates have fallen too, but by only about 26 percent. Until that gap narrows further, the promise of cheaper borrowing will remain only partially fulfilled for many Ghanaians.
