Bank Of Ghana Introduces New Prime Rate

Bank of Ghana (BoG) governor Paul C. Acquah has announced the introduction of the Prime Rate in the country’s banking system, a mechanism that would signal to the money market, the Central Bank’s assessment of monetary conditions in Ghana.

The Prime Rate will be the standard by which the Central Bank would provide overnight funds to banks and would be like what obtains in Europe and the US where the European Central Bank and the Federal Reserve create a determinant for base rates.


”The prime rate has been set at 24.5 per cent with immediate effect, after considering the economic outlook and prospects for inflation against the target announced in the 2002 budget and the steady pace of progress toward the goal of single digit inflation,” Dr Acquah told a press conference in Accra. He said BoG had noted with satisfaction the continued drop of inflation from 40.9 per cent in January 2001 to 19.9 per cent in January 2002.


”In parallel, money market rates, which are liberalised under the current monetary policy framework, have also fallen. The annual interest rate for the 91-day Treasury Bill declined from 41.9 per cent in January 2001 to 23.3 per cent as at the end of February 2002,” he explained.

Dr Acquah said during the period, commercial banks had responded to the easing of inflationary expectations by successively reducing their individual base rates while savings and time deposit rates have also dropped, more sharply than lending rates. He described the balance of asset portfolios and domestic demand as important, since they sustained economic growth and stability in the exchange market.


Dr Acquah said it was difficult to tell if commercial banks had been operating as cartels by holding the investing public to ransom with the rates they offered. Barclays Bank Ghana Limited this week reduced its base rate to 29.5 per cent, followed by Ghana Commercial Bank, which also reduced its rates to 27.5 per cent