Competition driving low bank’ interest rates - Lecturer

Competition in the banking sector has been identified as a major factor for the drive among commercial banks to reduce the cost of borrowing.

Leading banks in the country are giving indications for drastic reduction in interest rates, ahead of the next meeting of the Monetary Policy Committee of the Bank of Ghana.

The MPC is expected to reduce the Prime Rate, which determines the rate at which the banks lend to the public.

The Statistical Service Department has also announced a 5.08 percent drop in inflation for January 2010, indicative of the positive health of the economy.

These have been identified as reasons why the banks are bringing down their rates.

But a lecturer at the KNUST School of Business, Newlove Asamoah tells Luv Fm there are other factors to the quest for the banks to reduce the interest rates.

He notes “competition is very keen in the banking industry now and everybody is fighting for the little customers available and from the simple law of demand and supply, the higher the price the lesser people would be attracted to it. So the banks want to reduce the interest rate, so that they can attract more people”.

Mr. Asamoah is confident about the positive impact of the new development on the economy. “It will have positive impact on borrowers and businesses because now you can easily go in for loans at lower interest rates. It is going to create more opportunities for people to access credit to produce more”, he said.

The Prime Rate is currently pegged at 18 percent and the commercial banks charge as high as 32 percent.

Story by Kofi Adu Domfeh