Ghana’s lending benchmark is facing fresh calls for reform, with analysts questioning whether the country’s current formula adequately reflects the actual cost of funds used by banks to provide loans to businesses and households.
The Ghana Reference Rate (GRR), which serves as a common starting point for pricing bank loans, combines the Bank of Ghana’s Monetary Policy Rate (MPR), the interbank rate and an adjusted 91-day Treasury bill yield. However, a recent analysis argues that the formula places considerable emphasis on government securities while failing to directly account for the interest banks pay to attract deposits.
The proposed alternative would replace the Treasury bill component with a measure of banks’ actual deposit costs, potentially reshaping how Ghana’s lending benchmark responds to changing financial conditions.
Although the proposal does not guarantee lower borrowing costs, it could trigger a significant debate about transparency, monetary policy transmission and the factors determining the interest rates businesses pay.
Ghana’s Reference Rate Faces Growing Scrutiny
The GRR is an important component of Ghana’s lending market because it provides a common reference point from which banks determine interest rates on loans. Its movements can influence borrowing decisions, investment plans and the ability of businesses to finance their operations.
The existing formula assigns a 40% weight to the Monetary Policy Rate, 20% to the interbank rate and 40% to the reserve-adjusted 91-day Treasury bill rate.
The concern centres on how the Treasury bill component is calculated. Because the rate is adjusted for banks’ cash reserve requirements and cash held in their vaults, its effective influence on the benchmark can exceed its stated weight.
Using a cash reserve ratio of 20% and an illustrative cash-in-vault ratio of 2%, the analysis estimates that a one-percentage-point increase in the raw Treasury bill rate raises the formula-based GRR by approximately 0.513 percentage points.
By comparison, a similar increase in the policy rate adds 0.400 percentage points, while a one-percentage-point increase in the interbank rate contributes 0.200 percentage points.
This difference raises questions about whether the benchmark gives sufficient weight to monetary policy signals and whether movements in government borrowing rates are exerting too much influence on private-sector credit.
Treasury Bill Movements Could Influence Borrowing Costs
The analysis examined 102 monthly observations between April 2018 and September 2026 to assess the contribution of the three components to movements in the formula-based GRR.
Its findings indicate that the Treasury bill component, including the reserve adjustment, accounted for 78.8% of the variance in monthly changes in the benchmark. The policy rate accounted for 12.6%, while the interbank component contributed 8.6%.
These figures refer to movements in the formula-based benchmark, rather than the proportion of individual loan interest rates attributable to Treasury bills.
Nevertheless, the findings highlight the influence that government securities can exert on a rate used to price private credit.
Treasury bill yields respond to several factors, including government financing requirements, auction supply and investor demand. When those conditions push yields higher, the effect can feed into the reference rate even when the policy rate remains unchanged.
A business with a floating-rate loan linked to the GRR could consequently face higher borrowing costs without any corresponding deterioration in its creditworthiness.
The analysis argues that this relationship deserves closer scrutiny, particularly when businesses depend on affordable credit to purchase equipment, replenish inventory, expand operations or meet payroll obligations.
Why Banks’ Deposit Costs Could Change the Formula
The proposed reform would replace the Treasury bill component with a direct measure of banks’ deposit interest costs while initially retaining the existing 40%, 20% and 40% weighting structure.
Under this approach, the deposit-cost component would reflect the interest banks actually accrue on eligible cedi deposits relative to their average deposit balances.
The calculation would include non-interest-bearing deposits at a zero interest rate, rather than relying exclusively on advertised savings or fixed-deposit rates.
The analysis illustrates the approach using a hypothetical GH¢100 deposit base. If GH¢50 attracts no interest, GH¢30 earns 10% annually and GH¢20 earns 15%, the total annual interest cost would be GH¢6.
This produces a direct deposit cost of 6%, reflecting the blended cost of the entire deposit base rather than the rates paid on selected deposit products.
The argument is that a benchmark designed partly to reflect banks’ funding conditions should incorporate the actual cost of mobilising deposits, rather than relying on government securities as an indirect proxy.
However, deposit costs alone would not capture every expense associated with lending. Banks must still account for operating costs, borrower credit risk, capital requirements and other relevant charges.
Would Borrowers Finally Get Cheaper Loans?
The potential impact of reform remains uncertain because replacing the Treasury bill input would not automatically reduce the GRR.
Using illustrative August 2026 market inputs, the analysis estimates the existing formula-based benchmark at 10.40%, compared with the published September GRR of 10.18%.
Under a hypothetical scenario in which the direct deposit cost is 6%, the proposed formula produces a benchmark of 10.72%, approximately 0.32 percentage points above the existing formula estimate.
If the deposit cost falls to 4%, however, the proposed benchmark declines to 9.69%, around 0.71 percentage points below the existing estimate.
At a hypothetical deposit cost of 8%, the proposed benchmark rises to 11.74%.
These scenarios demonstrate that the reform would make the benchmark more responsive to measured deposit costs, but its effect would depend on the actual cost of funding across the banking industry.
The analysis also notes that a lower GRR would not necessarily translate into an equivalent reduction in final loan rates, since banks apply contractual margins and may charge additional fees.
Bank of Ghana Urged to Test Proposed Reform
The analysis recommends that the Bank of Ghana and the Ghana Association of Banks test the proposed formula alongside the existing benchmark for at least three monthly releases.
Banks would submit deposit interest accruals and average eligible balances using a common reporting definition. Authorities could then compare the two formulas before deciding whether to replace the Treasury bill component.
It also recommends publishing the precise inputs, observation dates, reserve adjustments and weighted contributions used in each monthly GRR announcement.
Greater disclosure would help businesses understand how the benchmark changes and enable borrowers to verify whether their contractual interest rates have been adjusted correctly.
Loan statements could also provide clearer information about the GRR, contractual margins, fees, annual percentage rates and the dates on which floating interest rates are due for review.
Ultimately, the proposed reform presents Ghana with an opportunity to reconsider what its lending benchmark should measure. Whether it produces cheaper credit will depend on the actual deposit-cost data, the final formula and how banks transmit changes in the benchmark to borrowers.
The immediate priority is to test the proposal against reliable industry data and make the calculation easier for the public to understand.
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