BoG’s Policy to Maintain Prime Rate above Inflation Is Cause of High-Interest Rates …Togbe Afede

The Agbogbomefia of the Asogli State, Togbe Afede XIV, has blamed the Bank of Ghana (BoG) for being the cause of collapsing businesses in Ghana, saying the bane of Ghana’s private sector is high-interest rates at the Commercial banks, as a result of the BoG’s high prime rates.

According to Togbe Afede who is a businessman and an investment banker in his private life, says high-interest rates at the commercial banks are directly caused by the BoG which has been carrying out a hurtful practice of pegging its prime rate above inflation.

As Ghana is a country which has always had high inflation, it means that the BoG’s prime rate – the lowest rate of interest at which money may be borrowed commercially – is inevitably always high, and this fuels inflation and even the depreciation of the cedi as well.

Addressing a delegation from Parliament which had paid him a courtesy call in his palace, Togbe Afede said that this root problem is better put in perspective when one considers the fact that Ghana’s prime rate is 135 times higher than that of the Bank of England.

“…Is it not odd that Bank of England’s prime rate is 0.1%, and Bank of Ghana’s rate is 135 times. That is 13.5%? How do you borrow, and produce and compete with somebody producing from China or from England borrowing at much lower rates? It’s not possible,” He said. 

He pointed out that in the UK, for instance, businesses are able to produce at far cheaper prices because they are able to borrow at far lower interest rates, even though comparatively, they have high debt to GDP ratio. 

According to him, interest rates, compared to Ghana., in spite of the UK’s debt to GDP ratio is about 104%. Ghana’s is 81%. Relatively, we are better. 

The per capita indebtedness of the UK is $42,000, while Ghana’s is $1,400. Compared to income per capita, Ghana’s income per capita is relatively higher at $2,300 when that of the UK is $40,000. 

“So UK’s debt per capita, $42,000, is higher than income per capita, $40,000. Our debt per capita $1,400, is much less than our income per capita, $2,300. So relatively, the UK is more indebted than Ghana, yet the rate at which the Bank of England lends to banks currently is 0.1%, while the Bank of Ghana lends to our banks at 13.5%. That is a whopping one hundred and thirty-five times the Bank of England rate! Astonishing!!” Togbe said

The Agbogbomefia of Asogli lamented that while making profit for itself through high prime rate, the BoG has made it virtually impossible for businesses to borrow to produce at competitive rates.

This system, he points out, benefits only the BoG and the commercial banks who make huge profits by lending out customers’ money at high-interest rates. And when the profits come in, they give a small part of it to the customer and keep the lion share.

Togbe Afede XIV pointed out that 

Private entrepreneurs or enterprises don’t have stacks of money that they just go and dip into to fund their businesses and therefore have to depend on the banking system. 

He said over the years he has complained about the practice of keeping the prime rate above inflation rate and in response, those in charge have denied and come up with all sorts of excuses. However, this has been the case and the bane of development in the country.