Expert says Banks Cannot Defy Ghana Reference Rate as Lending Rate Falls
By Praisebell Rosemond Larbi
A finance and banking expert has dismissed rising concerns that commercial banks may refuse to adjust lending rates downward despite recent monetary policy easing. According to him, in a competitive financial market like Ghana’s, no bank can simply disregard the Ghana Reference Rate (GRR), the industry benchmark used in pricing loans without losing customers and jeopardising its market position.
Ghana’s financial sector has entered a period of sustained transition, marked by consecutive reductions in the Monetary Policy Rate (MPR). Although the MPR is the primary tool for guiding interest rates, any change in it does not immediately translate into lower borrowing costs. Instead, such changes must first pass through the Ghana Reference Rate, which is calculated using the policy rate, treasury bill yields, inflation trends, and other macroeconomic indicators.
The GRR serves as the base pricing metric for all banks. It is from this benchmark that lenders add margins reflecting risk, operational costs, and profitability considerations. The final interest rate a borrower receives is thus the GRR plus a risk premium unique to the borrower and the institution.
With the Bank of Ghana’s policy rate experiencing notable declines this year, raising expectations of a corresponding fall in the GRR businesses and households are eagerly anticipating lower lending costs. But in the midst of this optimism, a pressing question has emerged within the business community: Can banks simply ignore the GRR and continue charging high, “outrageous” loan rates?
The answer, according to Dr. Benjamin Amoah, Senior Finance Lecturer at the University of Ghana, is an emphatic no.
Speaking in an interview, Dr. Amoah stressed that the Ghana Reference Rate is not an optional guide but a critical benchmark that anchors loan pricing across the entire banking industry. He explained that the GRR functions as the “starting point on the calculator” used by every lender and remains indispensable to loan pricing and risk assessment.
He noted that the Ghanaian banking landscape is now more competitive than ever, with customers ranging from large corporates to micro enterprises, paying close attention to interest rate movements. Borrowers are increasingly informed and are comparing rates across banks before making loan decisions. This, he argued, makes it nearly impossible for any bank to set its rates excessively above the GRR without facing immediate pushback.
“The Ghana Reference Rate is more or less the industry-wide rate. You can call it the starting point for pricing. In a competitive environment, a bank cannot ignore the Ghana Reference Rate. This is an open market, and every single borrower will look at it to decide whether to invest or borrow,” Dr. Amoah stated.
He added that especially in the current environment of declining policy rates, no bank can afford to detach its lending rates from market expectations. Doing so, he warned, would only result in the bank losing customers to competitors offering more realistic and market-aligned pricing.
“The market will force you to conform. Banks will be compelled to reduce their rates. If they fail to respond, competition will kick them out. They will simply struggle to sell loans,” he emphasized.
With the Monetary Policy Committee recently announcing another policy rate cut, an action expected to push the GRR downward in the coming weeks, analysts say significant relief may be on the horizon for businesses and households facing high borrowing costs.
According to Dr. Amoah, the business community can rest assured that banks have little room to manoeuvre. Attempts to maintain high lending rates in the face of a falling GRR would only result in self-inflicted losses.
In his view, Ghana’s lending market is now too competitive, borrowers too informed, and the economy too sensitive to interest rate dynamics for any bank to defy the benchmark and survive.
