Rising interest rates in the money market
Reduce domestic borrowing, Dr Peprah in government
Banks should focus on lending to industries
Ghana’s central bank has been asked to cap commercial bank interest rates to reduce the cost of borrowing in the country.
Chief Financial Officer Dr Williams Peprah, speaking to Joy Business, said the Bank of Ghana needs to cap banks’ investments in government securities to create more headroom for businesses.
“Already, we have 50% of our graduates who are unemployed because there is a lack of liquidity in the country. And what we can do as a country to remedy this situation, in my opinion, we should cap the operations of commercial banks in terms of interest and profits that they generate.
“I know that commercial banks need to increase their shareholders’ net worth by charging more interest, but we should be able to push our commercial banks to focus on lending to industries. I will therefore recommend that central banks advise that the portfolios of commercial banks be examined.
Dr Peprah advised the government to reduce its borrowing from the domestic market to enable businesses to access funds to expand.
“The government needs a lot of money to operate and what the government is doing and what is happening is accepting higher interest rates so they can entice investors to invest in government bonds. But the impact of this situation is that it will increase the cost of doing business in the country, especially with regard to the cost of production. Also, you see banks not giving money to production entities, but rather investing in government bonds.
“The government must reduce its borrowing. It needs to find innovative ways to increase income to alleviate the cost of credit,” added Dr Peprah.
The latest treasury bill auction results from the Bank of Ghana showed that interest rates on short-term financial instruments increased slightly.
Even if the government says it wants to keep interest rates low, it is now forced to revise its rating by accepting a slightly higher yield for short-term financial instruments.