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Ghana Association of Banks proposes reform of Ghana Reference Rate
•2 min read•2 sources
The Ghana Association of Banks (GAB), supported by academic experts, has called for a comprehensive review of the Ghana Reference Rate (GRR) formula to better align credit pricing with the actual funding costs of financial institutions. Currently, the GRR serves as the primary benchmark for determining interest rates on loans; however, critics argue that its heavy reliance on Treasury bill yields does not accurately reflect the interest banks pay on deposits. The association is advocating for a shift toward a model that prioritizes these actual deposit costs to ensure a more realistic lending environment.
In a report authored by Dr. Williams Kwasi Peprah and Fred Bortey Kyeremeh, the experts argue that the existing formula blends several financial indicators that often skew the rates borrowers ultimately pay. The research suggests that the current weighting system can misrepresent the true cost of borrowing, as Treasury bill rates do not always move in tandem with the banking sector's liquidity and funding realities. To address this, they propose a simplified model that incorporates a direct assessment of deposit costs, which would provide a more transparent and reliable benchmark for commercial credit.
Beyond technical adjustments to the formula, the GAB is pushing for significantly higher levels of transparency in how benchmark rates are calculated and communicated. The proposed reforms include mandatory disclosure of input calculations and clearer explanations of how fluctuations in the GRR impact existing and new loans. While historical data shows a strong correlation between the GRR and lending rates, the experts maintain that the benchmark in its current form cannot alone dictate fair loan pricing without more rigorous oversight of its components.
The recommendations aim to foster better understanding and decision-making for businesses and individual borrowers across the country. By refining the GRR's weights and improving the methodology behind deposit-cost assessments, the GAB believes the financial sector can achieve more stable and predictable interest rate movements. These proposals are expected to inform ongoing discussions with the Bank of Ghana regarding the modernization of the country’s monetary policy and credit pricing frameworks.
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