Seth Terkper, former Finance Minister
• The central bank cannot be held responsible for high lending rates in the country
• According to Seth Terkper, government’s appetite for excessive borrowing is to blame
• There has been a gap disparity in the average lending rates of banks and policy rate of the central bank
Former finance minister has pointed that the Bank of Ghana is not responsible for the high lending rates offered by commercial banks in the country.
There have growing concerns from economists and some think tanks over a gap disparity between the lending rate of banks and the policy rate of the central bank.
In an interaction with Joy Business monitored by GhanaWeb, Seth Terkper said government must accept responsibility for the high lending rates due to excessive borrowing especially on the domestic market front.
“Until government reduce its borrowing and concentrate on raising more revenue, cost of credit will continue to remain high. We instituted programmes such as the Sinking Fund, ESLA, all intended to reduce the high debt and arrears. This was the beginning to trim the debt and create fiscal space for the private sector to access funds, and consequently reduce interest rates going forward.”
“The Policy Rate is reflected in rates going down. The fiscal situation is suggesting that the rates will not go down; if government is in the same market and is borrowing from the market then there is a crowding out effect and making money inaccessible to the private sector,” Terkper explained.
He added, “when I heard that appeal by prominent government officials, it looks like the BoG was being made a scapegoat for the policy rate. The policy rate itself…yes is not moving in tandem with the market rate which are not excessive from the perspective of where they have traditionally been. I think, we should be examining the fiscal and the pressure that it is bringing and that is in the realm of government.”
The former finance minister under the erstwhile John Mahama administration said calls for the central bank to place a cap on lending rates could be counterproductive as the institution does not control the fiscal economy when things go wrong.
“The monetary authorities do not control the fiscal situation, it’s the Ministry of Finance. I would have wish that attention will have been drawn to the deficit which is leading to more borrowing, domestically and externally, but that was omitted from the speeches of prominent people including the President [Nana Akufo-Addo]”.
Meanwhile, the Bank of Ghana has recently revealed average lending rates in Ghana have dropped from 28% in December 2016 to 20% in August 2021.