REVIEW INTEREST RATES NOW

TIME and again captains of business and politics have raised concerns over the high interest rates on bank credits and called on the banks to lower their rates.
Such calls for review have always been placed in the context of the need to encourage growth in key and productive sectors of the economy, such as construction and manufacturing, which depend on credit facilities from the banks to expand their operations and activities.
Some economic analysts have observed that despite the growth in the banking sector of the country over the past four to five years, characterised by the influx of some influential and aggressive foreign banks, the real impact on the productive sectors of the economy is yet to be felt.
The central bank has, in the true spirit of promoting a free market, divested itself of controlling or dictating interest rates to be charged by commercial banks.
Instead, the Bank of Ghana has relied on moral suasion to get the banks to realistically adjust their interest rates.
Interestingly, despite the growth in the banking sector, interest rates remain high. While the prime rate of the Bank of Ghana closed the year at 13.5 per cent, interest rates (lending rates) hovered between 19.9 per cent and 28.0 per cent.
In the past, the banks had cited high government borrowing and high risk in the economy as factors affecting the high adjustment in interest rates. These two factors have all eased.
The central bank, at its Monetray Policy Committee meeting early this month, gave credence to evidence of improved credit conditions in terms of access and terms of credit provision.
The question that comes to mind is, why do lending rates continue to be high in an economy that has remained stable for nearly a decade?
While recognising the commendable reduction in lending rates from the region of 45 per cent in 2000 to the present average rate of 20 per cent, the DAILY GRAPHIC wishes to identify itself with sentiments expressed by the Deputy Minister of Finance and Economic Planning that interest rates as they presently cannot stimulate the levels of economic growth the country needs to move into a middle-income status.
The high interest rates notwithstanding, the private sector has defied the odds in 2007 attracted some commendable amount of credits.
Over the years, there have been so many appeals made to banks and other financial institutions in the country to reduce interest rates but such calls have largely gone unheeded.
The DAILY GRAPHIC calls on the Central Bank to move a step further away from moral suasion to introduce some innovative interventions that will help address the issue in a decisive and appropriate manner.
To achieve this goal, the Central Bank should critically examine the trends and consider possibilities such as incentives, setting quotas for credit to certain key sectors such as agriculture and industry to enable the banks to channel their resources there.
The DAILY GRAPHIC believes it will not be out of place for a central bank in a developing country to make such strategic interventions to drive the growth of the economy in a guided fashion, since market forces can distort and delay the economic take-off so badly needed.
Such a timely intervention by the central bank is key and cannot be deferred to another time if the gains so far made by the economy should be maintained. The time for action is now!