Average rates on loans given to individuals and businesses by banks in the country stand at 31.4 per cent at end-October 2022.

This is on the account of increments in the Bank of Ghana’s policy rate which subsequently leads to an increase in the Ghana Reference Rate (GRR) and risk assessment charges on borrowers.

The rise in the average lending rate marks a 11 per cent (1,100bps) year-on-year (YoY) increment in interest rates when compared to the 20.34 per cent average lending rate at end-October 2021.

The 11,000bps increment in the average lending rate is primarily driven by increments in the benchmark monetary policy rates set by the Bank of Ghana (BoG) and subsequently the Ghana Reference Rate (GRR).

Bank of Ghana’s monetary policy rate currently stands at 27 per cent following a 1,000 bps increment in the prime rate by the apex bank.

On the back of the increment in the prime rate, the GRR also on a YoY basis grew from 13.47 per cent at end-October 2021 to 27.44 per cent at end-October 2022.

Borrowing cost

The rise in average lending rate means high cost of borrowing by individuals and particularly businesses which translates into high cost of doing business.

The high average lending rate also makes it difficult for businesses and individuals to pay back loans taken from banks thereby potentially increasing gross non-performing loan ratios of banks in the country.

Monetary Policy

The Monetary Policy Committee of the Bank of Ghana on Monday raised its key benchmark interest rate to 27 per cent from 24.5 per cent above market forecasts of 26 per cent, bringing borrowing costs to the highest since 2003.

This is the fifth consecutive hike this year, in order to curb strong inflationary pressures and support the cedi which depreciated by 54 per cent against the dollar in the year to November.

The annual inflation rate continued its upward trend to hit a fresh 21-year high of 40.4 per cent in October, from 37.2 per cent in the previous month; and it is projected to peak in the first quarter of 2023