Cash reserve ratio increase to push interest rates up

Friday 4th April , 2014 5:49 pm

intrestBusinesses and individuals should brace themselves to pay more interest on loans from commercial banks.

This follows the central bank’s announcement of an increment in the cash reserve ratio of commercial banks from 9 percent to 11percent.

The decision which was taken at the last Monetary Policy Committee meeting is expected to have a significant effect on the policy rate increase.

The increment means the commercial banks will have to deposit 2% more of depositors’ funds with the central bank.

Funds with the central bank however do not attract any interest.

This means if a customer deposits 100 cedis at the bank, 11 cedis will be reserved with the central bank while no interest will be paid by the central bank on the amount.

Increasing the reserve ration means less money will be available to the banks for its operations.

Banking Analyst, Nana Otu Acheampong explaining the implications indicates the commercial banks will be increasing interest on loans to make up for the extra funds kept by the central bank.

“Interest rate is defined as the cost for the use of money. As far as the banks are concerned, their cost for the use of the money they take from the depositor is higher”, Nana Otu Acheampong said.

He added that, “Banks also charge interest for the use of their money.

The calculation of that interest includes the amount that they offer without paying interest ie the cash reserve ratio.

So moving from 9% to 11% means that the cost for using the bank’s money is also going to go up.”

Current average rate of borrowing in Ghana hovers around 25.6 percent.

Nana Otu Acheampong also indicates depositors could also be receiving a little more interest on their deposits.

“Depositors should be ready to get a little bit more for the monies they leave with the bank because interest rate goes both ways’.

By:  Anim Kwaku Boadu/