Calls for lower interest rates and government intervention in the financial sector seem to be gaining more support in view of revealing indicators that Ghana's interest rate which is around 33 per cent is the highest in Africa and among the highest in the world. However, the banks claim that on the practical side, the inherent risk associated with the macroeconomic environment does not favour a heavy downward reduction in their interest rates in spite of the drop from 18 per cent to 16 per cent. This represents a 200 basis points cut in the Bank of Ghana's policy rate at its last review in February. Many analysts, however, say the risk in rent in the economy is not so peculiar to Ghana, for which reason interest rates in the country could be so high. They point to other African economies which offer higher risk because of uncertainties in their economies, yet such countries have interest rates much lower than what pertains in Ghana. The Central Bank cut its policy rate from 1 8 per cent to 16 per cent last month at the end of the Monetary Policy Committee review meeting on the economy. The Governor used the occasion to appeal to banks to follow suit by reducing their rates further. However, a cursory look at the base rates of the banks since the reduction of the policy rate has seen a marginal decline in their interest rates. Most of the banks have cut their rates by one percentage points, with only a few having to cut their rates by 200 basis points, just to correspond with the 200 basis points in the policy rate. The average interest rates are currently around 28 per cent. According to Prof. Cletus Dordunoo, a renowned economist, the policy rate of the Central Bank was responsible for keeping interest rates high. Presenting data to back his claim, the learned economist said research had indicated that the country's interest rates were far from the average interest rates of Sub-Saharan Africa of 14 per cent. Speaking at an interest rate debate organised by Citi FM in Accra last Thursday, Prof Dordunoo, questioned what was the nature of risk associated with the country, that interest rates was so higher than in war-torn countries on the continent of Africa. “Is the risk in Ghana so high?," he asked and blamed the tendency to keep government’s debt so high, as well as the lack of competition among the banks as some of the reasons keeping interest rates high. According to the economic expert, there was a positive relationship between inflation and the policy rate, and that any increase in the policy rate automatically pushes inflation up. Analysts contend that default rates have declined from as high as 95 per cent in 1999 to 11 per cent by May 2009 and that could not be one of the reasons for keeping interest rates so high. “We need anti-trust laws," he added, and stated that leaving market forces to determine prices on the market was not even practiced in a more liberal market economy like the United States. He cited the example of the United States, where at the height of the financial crisis, a directive was issued by Alan Greenspan, the Head of US Treasury, to the effect that banks pegged their interest rates at 1 .5 per cent. Prof. Dordunoo observed that the Central Bank needed to have a second look at its monetary policies that will further push interest rates downwards. An Investment Analyst, and CEO of NewWorld Renaissance Capital, Ms Abena Amoah, shared this opinion that there was a need to have a Consumers Protection Agency to seek and advocate fair prices on behalf of consumers not only in the banking services, but in all other sectors of the economy. “The banks’ interest rates prevailing in the country are as though, we are in a war situation," she said and also questioned what really constituted the risks in the economy. Her opinion was that there was evidence to suggest people always would want to take advantage of any policy to up prices to the detriment of consumers. The Bank of Ghana last week published the average interest paid on deposits and annual percentage rates as at February 2010 with startling revelations of huge disparities between deposit rates and interest rates. For instance, the average interest rate on deposits for households was as low as 6.91 per cent and the highest being offered by First Atlantic Merchant Bank of 23.69 per cent. Base rates, however, range between 26.95 per cent and 32 per cent. In some cases, such as vehicle loans and mortgage loans interest on such facilities could be as high as 40.48 per cent. Ms Amoah contended that free market intervention had failed to lower interest rates, while the notion that competition would force down prices has also failed in the real world situation. She said that at the height of the financial crisis, where many countries pursued lower interest rates, the Bank of Ghana rather chose to increase the cost of borrowing, much to the discomfort of industry. Analysts point to lower inflation rates with inflation for February at 14,23 per cent, lower government dated securities, especially the one year note currently at 1 8 per cent, while the 91-Day Bill stands at 15.93 per cent, while the 182-Day Bill stands at 16.74 per cent, having come down considerably. The cedi, analyst believe, would for the first time appreciate against the foreign currencies on account of Ghana's oil exports, which is expected in the last quarter of the year. The government also passed into law the Borrowers and Lenders Act of 2008, which would help remove some of the risk associated with, especially, dispensing of mortgages. The banks have complained about the cumbersome procedures at the courts, which hampers their operations with regard to property disposal litigations. These arguments, analysts say, therefore, flies in the face of arguments by the banks that there are inherent risks in the economy. “The banks want to ride it for as long as they want to make the most of this situation," Ms Amoah noted. But the CEO and Managing Director of Zenith Bank Ghana limited, Mr Daniel Asiedu, put a spirited defence of the banks. His arguments were that, the reserves requirement of nine per cent deposited by the Central Bank was one example of how the cost of funds was still too high as such funds lodged with the Central Bank does not yield any returns. Again, he explained that although banks complained of the government dated securities as one of the reasons and which has come down considerably, the argument is that most investors have become savvy and demand rates very attractive on their investments. Again, at a higher rate on government dated securities, Mr Asiedu said banks locked up their funds at prevailing rates, and it was not possible to immediately revise interest rates downwards when the government dated securities fall. Again, the lack of reliable identification system, high overhead cost, lengthy legal process in litigation are some of the problems associated with the banking sector for which reason the interest rates regime was too high in the county. Mr Asiedu pointed out that banks did not gain in a high interest regime as the default rate went high and said the notion that banks were acting as "Shylock" was not entirely true. “The issue of interest rates needs a critical thinking and debate by all stakeholders for us to debate it and fashion out a strategy," he slated Source: Graphic Business