BoG sets maiden Ghana Reference Rate at 16.82%

Individuals and businesses from this month are likely to have their interest charged on facilities they access from commercial banks in the country reduced because the Bank of Ghana (BoG) has set its maiden Ghana Reference Rate at 16.82%.

This will see the cost of borrowing by businesses, especially the SME’s drop, and reducing the cost of doing business for such entities.

In a public notice. copied to thebftonline.com, BoG said the new Ghana Reference Rate will be the new module for calculating interest rates and begins this April.

The GRR according to the Central Bank, was done in consultation with the with the Ghana Association of Bankers re-constituted Working Group which reviewed the existing Base Rate model and developed a new framework for base rate determination.

A reference rate is an interest rate benchmark, which is used to set other interest rates.

It can be calculated depending on the type of transaction, as some use different reference rate benchmarks, but the most common are the LIBOR, the prime rate, and benchmark Treasury securities.

Per the statement, “the objective of the review among others is to fulfil BoG’s commitment to move towards a more market-based model of base rate setting, in the medium to long-term.”

Even though the central bank's policy rate is currently set at 18%, with the GRR coming to force, a bank shall price its Flexible and Fixed term loans by adding or subtracting its risk premium the notice said.

While Flexible or floating term loan for any tenure granted by a bank during the implementation period will reset after each month’s publication of the GRR, Fixed term loan rates granted by a bank in its normal course of business from the implementation date will run until maturity.

“The ‘Base Rate’ emanating from this model is now a Reference Rate rather than a Minimum Lending Rate for all banks as was the case with the previous model,” the Bank of Ghana stated in the notice to the public.