Consequences of High Interest Rates in the Ghanaian Economy…..

Interest rank ar among the closely watched multivariates in the parsimoniousness. The media on day-by-day bases record their movework forcet because they affect our e trulyday lives and halt crucial consequences for the wellness of the frugality. They affect personal closes as whether to consume or save, whether to buy a house and whether to purchase hold fasts or put silver into a economic systems cover. Interest topical anaestheticises similarly affect the economic decisions of households or professi one and only(a)s much(prenominal) as whether to put their cash in the deposit or clothe in new equipments for factories.Before continuing, we must understand exactly what provoke locate mean. By holding pecuniary shafts , such as brings or bewilders. Savers and pecuniary institutions ext last opinions to those individuals or firms that issue the instruments. The sum of credit across-the-board is the trader illume of the loan or the bring together. Th ose who hold financial instruments do so because they receive payments from the issuers in the form of fireingness. The portion sw wholeow real(a)ize is the chase evaluate or measure of recurrence. roll of paying back is the damage of credit in financial grocery stores and is usually expressed as a percentage (%) of the total amount borrowed that is to be paid each course of instruction (over and preceding(prenominal) the repayment of the principal, or amount borrowed). Thus, it is the expense of credit of the send of win over amidst the present and the future. Rate of returns (r) vary intermitn participation come in (i). It is the measure of i that ripe equates the present value (PV) of the benefits of the extra outstanding when give the sacked at i to its cost (Pk). That is, r is defined as r=MRP/Pk, where MRP=Marginal Revenue Product Pk= CostWe would however, take a look at how enkindle score is calculated, various theoretical analyses that seek to explain the purpose of quest rate, distinctions among nominal and real fill order. Finally, we shall relate it to the courtship of the gold coastian economy and look at the consequences of the lavishly enliven rank in gold coast. CONCEPTS OF please YIELD/RATE Interest gos on financial instruments are thought of in various ways. The most important of these are Nominal Yield stream Yield Yield to Maturity titulary YIELD Assuming that a alignment is issued in an amount of 100,000 with an parallelism to pay 6000 in pursuance e rattling socio-economic class.The annual payment of 6000 is the coheres annual voucher return. This is simply the doctor amount of recreate that the hold paper yields each year. The nominal yield on a bond is equal to rN= C/F, where rN is the nominal yield, C is the verifier return and F is the font amount of the bond. The annual yield of the 100,000bond with the 6000 coupon yield or return is equal to 6000 / 1000,000=0. 06 or 6 percent. Cu rrent Yield The current vicarious marketplace value of the bond typically is non the appear value of the bond. link ups often sell in the secondary market at prices that are different from their font value.For this effort, those contemplating on bond purchase often are busyed in the current yield of a bond. This equals to r i =C/P Where ri denotes the current market yield, C is the coupon return and P is the current market price of a bond. For instance, the current market price of a bond with a face value of 100,000 might be 90,000. If the coupon return on the bond is 6,000 per year, then annual current yield on this bond is equal to 6,000/90,000=0. 667 or 6. 7 percent. Yield on Maturity A bonds yield on maturity is the rate of return if the bond is held until maturity.Calculating this yield atomic number 50 be complicated, however, because the bonds normally differ. Typically, bonds are inter flip at a tax deduction, below its face value. whence, other things being eq ual, the bond holder receives an automatic crown gain if the bond is held to maturity. A seat of government gain occurs when the value of a financial asset at the quantify it is redeemed or sold is uplifteder than its market value when it was purchased. Consequently, the bond pays a coupon return. The yield to maturity must account for nearly(prenominal) the jacket crown gain and the coupon returns that a bond yields to its owner. MEASURING INTEREST RATESThe financial credit market instrument can be categorise under four types ? unproblematic Loan This provides the borrower with an amount of gold (principal) which at the maturity date must be repaid to the lender along with an superfluous amount known as an beguile payment. Supposing, a bank make you a simple loan of 100,000 for one year, you would have to pay the principal of 100,000 in one years clock time along with an extra care payment of say 10,000 given saki rate to be 10%. Most often, moneymaking(prenominal) bank loans to businesses are often of this type. ? dogged payment loanThis provides the borrower with an amount of funds that he is to repay by making the same payment every month, which comprises part of the principal and gratify for a given number of years. For example, if you borrowed 100,000, a fixed payment loan might require you to pay 12,600 every year for 25 years. ?voucher Bond A coupon bond pays the owner of the bond a fixed pertain payment every year until the maturity date, when a specified final amount is repaid. For example, a coupon bond with 100,000 face values might pay you a coupon payment of 10,000 per year for 10 years and at the maturity date repays you the face value amount of 100,000. Discount Bond A discount bond is bought at a price below its face value (at a discount) and the face value is repaid at the maturity date. However, un standardised the coupon bond, the discount bond makes no come to payment. It just pays off the face value. For example, a disc ount bond with a face value of 100,000 might be bought for ? 90000 and in a years time the owner would be repaid a face value of 100,000. These four types of instruments require payments at different times. Simple loan and discount bonds make payment only at their maturity dates, while fixed payment loans and coupon bonds have payments plosive speech soundically until maturity.The decision as to which of the instruments provides you with much income is difficult since they all make payments at different times. To solve this problem, the concept of present value was invented to provide us with a procedure for measuring post rate on these different types of instruments, be Value (PV) approach shows the present value Ao of a known amount An, to be received in n years assuming sharpen amour is at the rate ( i) . The present value (PV) formula is Ao=An/(1+i)n NORMINAL VERSUS veridical RATES OF INTEREST So far we have discussed avocation pass judgment only in current cedi terms.T here is, however, a problem with this. rising prices can erode the value of recreate received when a financial instrument matures. Any individual must take this into account when evaluating how much to save. For instance, supposing that a rescuer can earn a stated current cedi gratify rate or nominal recreate rate of r=0. 06(6%) on each cedi that he allocates to a one year bond. Supposing alike that the saver expects that prices of goods and ser evils would rise by a factor, ? e=0. 03(3%) Where ? e is pass judgment rate of pretension. This is the rate of pretentiousness that he expects to face.Such pretension would reduce the amount of goods and services that his disport would permit him to purchase. Thus, although the saver earns post chase on the bonds he anticipates the inflation give eat away at that interest and the rate ? e. Hence, the real interest rate that this saver anticipated or his expect inflation-adjusted interest rate is approximately equal r = r-? e r = 0. 06-0. 03=0. 03, Where r = real interest and r = nominal interest rate. In terms of what his savings can buy this saver actually anticipates earnings only 3% on his one year bond.A rate of return in current-cedi terms that does not reflect anticipated inflation is known as Nominal Interest Rate. The anticipated rate of return from holding a financial instrument after taking into account the extent to which inflation is expected to reduce to the amount of goods and services that this return could be used to buy is termed as Real Interest Rate. The real interest rate is crucial for determining how much the individual desires to save. The reason is that savings is foregone consumption. This individual is likely to give up more(prenominal) consumption if the real rate of return on savings is bad.This direction that the real interest rate is a crucial determinant of the saving in the nation where this saver is a citizen. Countries with last nominal interest place often experienc e very low saving rate because expected inflation is so risque. THEORIES OF INTEREST RATES Various theories have been propounded by various economists to explain the determination of interest judge. However we would way on three main theories namely Classical speculation Neo-classical/Loanable funds Theory Keynesian/Liquidity Preference Theory CLASSICAL / legitimate guess OF INTEREST RATESThis theory by Marshall and Pigou uses savings and coronation in determining interest judge. The theory equates investment to train for capital or sum of bonds (i. e. , sales of bonds). and savings to tag on of Capital or Demand for bonds (i. e. purchases of bonds). Hence interest rate is goaded when investment equals savings as illustrated below Figure 1. INVESTMENTS SAVINGS COMBINATION IN THE BONDS grocery Where B (supply of bonds) = I( investment ) B ( make for bonds )= S (savings) r is the equilibrium rate of interest at where S=IAccording to the classicals, in that location are o nly twain groups of people in the market to provide bonds investors and government. Firms sell bonds in order to have capital or funds for investments. The sale of bonds however, depends on the expected rate of returns and the cost in selling the bonds. Hence bond price is expressed as PB=Y/r where PB=Bond Price , Y=rate of returns and r= interest rate, implying an inverse alliance ming guide with Bond prices and interest pass judgment, Expected rate of returns is assumed fixed, and when interest rate rises preceding(prenominal) the rate of returns, it affects the relationship between investment and interest rate.Assumptions The classicals assume that, Income is constant The saving-investment schedules are independent of one another Criticisms Keynes asserts that income is variable and not constant and that the equality between savings and investment is brought most by changes in income and not by variations in the rate of interest. Keynes besides states that the saving-inve stment schedules are not independent of one another THE NEO-CLASSICAL/LOANABLE FUNDS THEORY This theory explains the determination of interest in terms of strike and supply of loanable funds or credit.The theory defines rate of interest as the price of credit which is determined by the demand and supply for loanable funds. According to Prof. Lerner, it is the price which equates the supply of credit or saving plus the net ontogenesis in the amount of money in a period to the demand for credit or investment plus net hoarding in the period Demand for Loanable Funds. Three main entities of demand for loanable funds governments, business men and consumers need them for purposes of investment, hoarding and consumption. Government borrows funds for constructing public works.Business men borrow for the purchase of capital goods and for investment projects. Such borrows are interest elastic and depend mostly on the expected rate of profit. person consumers however may demand loanable fu nds for the purchase of durable consumer goods like houses. These borrowings are as well interest elastic. At lower range of interest, people borrow more than at high schooler range of interest in order to enjoy their consumption now. Supply of loanable funds The supply of loanable funds comes from savings, dishoardings and bank credit.The main sources of supply of loanable funds are private, individual and integrated savings. Savings depend on the take of income. For a given take aim of income savings forget depend on interest rate, and the higher the interest rate the greater will be the inducement to save and vice versa. This saving is referred to as Personal Savings. Corporate savings are the undistributed profits of firms and it also depends on current rate of interest to almost extent. High interest rate deters borrowing and thereof encourages savings. Dishoarding may also occur when interest rate is high or increments.Thus, one dishoards (ie, relinquish hoarded mo ney or idle money holdings), if the cost of holding that money gains as a conduct of high interest rate. Hence, there is a positive relationship between interest rate and dishoarding. asserts also give credit when the borrowing rate is high. That is when interest rate on credit payable by borrowers is high, hence a positive relationship between interest rate and bank credit. Criticisms Savings not interest elastic. The theory over emphasis the influence of the rate of interest on savings as interest elastic.Thus, people save not only to earn rate of interest but also for other purposes like preventive motive, hence savings are interest inelastic. The theory is also criticized for combining monetary factors with real factors making it unrealistic. Equilibrium rate reflects unstable equilibrium. The demand and supply schedules for loanable funds determine the equilibrium rate of interest OR which does not equate each component on the supply perspective with the corresponding co mponents on the demand side. KEYNESIAN/ LIQUIDITY PREFERENCE THEORYKeynes defines interest rate as the price which equilibrates the desire to hold wealth in the form of cash that is the demand and supply of money determines interest rates. The supply of money is considered fixed and exogenously determined (that is inelastic). Demand for money is also called runniness orientation which is the desire to hold money. In this case, interest rate is the reward which has to be offered to induce people to hold their wealth in some form other than hoarded money. According to Keynes, speculative demand for money is determined by interest rate and bond prices.He considered the current interest (i) as that which determines the speculative demand for money. The higher the rate of interest, the lower the speculative demand for money. At very low rate of interest people will rather prefer to keep their money in cash than investment funds in bonds because purchasing of bonds will mean a loss. De termination of interest rates The equilibrium interest rate is determined at a point where the supply and demand for money equilibrates. At the point of liquidness trap, there is the belief that interest rate will not fall but will at a point in time rise hence investors hold money against future rise in interest rate.Criticisms The theory is considered as indeterminate by Prof. Handson. Keynes asserts the liquidity preference determines the interest rates. The problem is that a new liquidity preference scent would have to be drawn at each level of income. This indicates that income levels will have to be known in front otherwise, the supply and demand for money curves cannot tell us what the interest rates will be. Hicks and others were of the view that interest rate is determined by the following i. Investment demand guide ii. Savings function iii. Liquidity preference function iv. Quantity of money function.They are present in Keynes theory but not all are the interest rate a nalysis. Keynes ignores investment and savings, hence his theory is considered as incomplete. TRENDS IN SAVINGS AND LENDING RATES IN THE GHANAIAN providence (1994-2004). YEAR19941995199619971998199920002001200220032004 LENDING RATE31. 2440. 5641. 7143. 5838. 536. 54743. 7536. 3632. 7528. 8 DEPOSITE RATE21. 3726. 7532. 2432. 320. 215. 3925. 817. 4312. 4911. 969. 87 INTEREST SPREAD9. 8713. 819. 4711. 2818. 321. 1121. 226. 3223. 8720. 7918. 9 The interest give out was calculated as a difference in the numbers of the change and the set rates covering the said period.Between 1997 and 2001, the interest spread increase and after started falling at a slightly varying decreasing rate. This was the period when the lending rates were high 43. 75% in 2001, grim from 47% in 2000 because of the high inflation rate and the usual turbulence at bottom the economy. The corresponding deposit rate was 17. 43%. Between the years 2001 and 2004, the average interest spread was 23. 66%. This rate of profits of the commercial banks, harbinger the spiral influx of foreign banks especially from neighbour Nigeria. It has been taunted that the banking firmament is doing very well.In reality there has not been much argument between the alive banks, hence the high lending rate as well as their profits. They tended to act as collusive oligopolies. Recent developments and trends in the banking sector has been that, competition at long last has set in. For instance the Zenith Bank has one-sidedly decided to reduce its lending rate 14. 1% with gaze to the general rate. This will result in much more conversion in the sector resulting in better banking services and a general reduction in the interest rate as pertained in free-enterprise(a) markets.From the existing trends, especially as indicated in the graph above, other sectors of the economy will take advantages of the low interest rate to boost up investments and hence rig with a resultant increase in the GDP. This is the m iracle of interest rates. HIGH VERSUS LOW INTEREST RATES IN THE GHANAIAN ECONOMY. In most economies including gold coast, interest rates are largely influenced by the premier(a) rate which is the rate at which the central bank gives over-night loans to the commercial banks. Thus, when Bank of Ghana ( mire) fixes its charge rate, interest rates are adjusted depending on the direction of the prime rate.There is however a positive relationship between prime rate and interest rates. When prime rate is set high or low interest rates are also fixed relatively high or low. For instance, interest rates followed a declining strain in 2003. The monetary policy committee of BOG revised the prime rate downwards from 21. 5% in 2003 to 18. 5% in 2004. In line with this downward revision, the commercial banks base rates dropped from an average of 29. 0% to 25. 4%. Interest rates for the 91-day treasury bill dropped from 18. 71% at the beginning of the year to 17. 8% at the close of December 200 4. The inter-bank interest rate also dropped from 17. 12% in January to 16. 23% at the end of December. Interest rates, however, low or high have both approbatory and adverse effects on the economy of a country. During periods of high interest rates investment falls and savings increase and vice versa in the case of low interest rates. The table and graph below shows interest rates, 1998-2004 and interest rate margins respectively. YEAR1998199920002001200220032004 SAVINGS22262929. 2525. 232319. 25 TIME DEPOSITS914. 7513. 520. 520. 1418. 515. 5Holders of stocks lose during periods of high interest rates and holders of money (cash) gain though money earns zero interest. In periods of economic boom, high interest rates might be take to check inflation, while low interest rates will be needed to belt along investments and create employment in recessions. In between these two extremes, interest rates are adjusted up or down depending on prevailing economic conditions. High interest ra tes will slow down the economy and cripple the private sector. Investors cannot inlet funds from financial institutions, thus creating low level of investments.It will also be tempting to invest operational funds in high yielding bonds than in infrastructural business investments. This will reduce spending, shrink matter output and bring down inflation. Low level of investments will consequently create unemployment. The central bank reacts by lowering interest rates using the sight deposit rate (inter-bank transaction rate with commercial banks also referred to as the key rate). Low interest rates stimulate the economy. Investors can access low-cost capital for investment. Employment increases, and the national output increases.Low interest rates therefore allow for borrowing and spending, but then, inflation will also pick up. As inflation picks up, companies can increase employment, since real wages decrease. Successive increase in interest rate leads to inflation. pompousnes s however bad for an economy also leads to reducing unemployment rates since there is a negative relationship between inflation rate and unemployment rate. CONSEQUENCES OF HIGH INTEREST RATES IN THE GHANAIAN ECONOMY. High interest rates have certain repercussions in the Ghanaian economy. Prior to 1987, there was a decline in economic growth and development in Ghana due to high interest rates.Current high interest rates on bank loans (over 25%) and treasury bills (17%) have been a practiced impediment to raising capital in the local market. private sector growth in Ghana has been constrained by limited financial support opportunity for private investments. High interest rates lead to move out of the private sector in the money market it makes available loanable funds to the government. Thus, lenders of loanable funds shift lending to only the government with the gage that there is 100% safety in retrieving their money since they believe that governments do not die.Studies done in the past show that the growth appendage in Ghana has been driven mostly by public investments. As a result, some have attributed the lack of accelerated growth to a combination of weak investment and low productivity from the private sector. Hence the current government in its manifesto promised to make the private sector the engine of growth by providing the right socio-economic framework. For example, the government through the monetary policy committee of the bank of Ghana (BOG) managed to reduce the Banks Prime Rate from 21. % in 2003 to 18. 5% in 2004 and currently down from 15. 5% at the beginning of 2006 to 14. 5%. When the prime rate fell, the BOG was expecting a corresponding decrease in commercial bank lending rates but its evident that the private sector is not responding to such developments commercial bank lending rates have ranged between 18. 5% and 33. 5% as indicated by the Governor of the BOG. This has been a major disturb for small and medium scale enterprises t hat cannot access loans at these exorbitant rates to expand their activities High interest rate may lead to increase in debt ratio that is, when interest rate is set high, cost of governments borrowing increases, interest payments increases and total debt increases. When government wants to pay its debt, it either scratchs out or borrows money to finance its debt. However if the government wants to avoid the former which usually leads to inflation, it falls on borrowing to finance its debt. These borrowings also attract interest payment which increases the total debt payment in economy.For instance, profile of interest rates in Ghana reveals the real rates ranging from 10% to 21. 7% in 1996 to 1999. The high rates which are more than 100% between 1996 and 1999 correct the debt burden. It is clear that since1997, borrowing from domestic sources was not even enough to finance the deficit as a result of high interest payments, thus for the last half of the 1990sthe country had to bo rrow externally and/or print money to finance the deficit. For instance, in 1995 change in domestic debt was 200. 9 one thousand thousand cedis but interest payment was 232. jillion cedis which is over and above the change in domestic debt. As in year 2000 change in domestic debt was just 855. 5 billion cedis but interest payment was1446. 2 billion cedis over and above the change in debt. Consequently, as a result of the borrowing (i. e. domestic and external) it contributed to a high rate of growth of our debt that led to a state of bankruptcy in which the government failed to honour its debt obligation. As a result, in 2001 the Ghanaian economy was declared H. I. P. C. ?The need for the government to make interest payments on large debt may contribute to inflation.For example ,inflation may result if the government decides to finance interest payment, not by collecting taxes, instead by borrowing. For instance, foregoing to year 2000, the government of Ghana depended on borrowi ng to finance its debt as a result inflation record at that period was very high ( i. e. 41%). ?At very high rate of interest people hold bonds or save money rather than investing. Inflation occurs as a result of higher prices of goods and services, cost of living bring into being very high, the poor and low income earners suffer economic hardships.Between 1980 and 1983 in Ghana, inflation was very high not forgetting interest rate as well. This led to economic hardships in 1983. ?High interest rate deprives both local and foreign investors from investing in the economy. This disturbs economic growth and development. In Ghana, when interest rates are high foreign investors invest in capital goods rather than in productive ventures. In spite of the consequences of high interest rate, there are also some benefits. The truism that high interest rate contributes to high inflation rate reduces unemployment ratio in the economy.In Ghana for instance, the economy has achieved respectable rate of GDP growth averaging over 4% in the 1990s as compared to the negative average growth rate over the period 1970 -1983. However, the average inflation rate fell to round 19% in 1998 relative to 122% in 1983 due to increase in employment levels or a reduction in unemployment levels as one of the factors responsible for this trend. ?High interest rate serves as a diaphysis for monetary control in the economy. Through the use of the open market operation (OMO), where the economy is operating beyond its full employment level.That is when it is considered as being hot the rate of interest can be increased by the central bank in the purchases of previously issued governments bonds. This mops up superfluity liquidity thereby reducing the money supply in the economy. The result is that demand for money now exceeds money supply thereby tender up interest rate. This slows down the growth rate to an acceptable level enabling the economy to operate at full employment level. ?During pe riods of high interest rate, financial institutions records very high turn-overs. Governments tend to earn high tax revenue through taxes charged on banks turnovers.The bank of Ghanas annual report (1997), recorded a high turn-over as a result of high interest rates as shown in the table below . The Central Bank maintained its rediscount rate at 45. 00per cent throughout the year under review. currency market rates were also fairly stable in the year. The 91-day Treasury Bill discount rate for example remained at 42. 80 per cent through November before declining to 42. 48 per cent at the end of the year. The commercial banks borrowing rates were also generally stable throughout the year. Rates for savings deposits locomote up slightly from 22. 50-31. 0% to 22. 50-32. 00% and the range for call money from 25. 00-31. 00% to 24. 00-34. 00% per annum. The banks lending rates however, showed some upward trends. Rates for the agrarian sector (usually the lowest) moved up from 30. 00 47. 00% to 35. 00 49. 00% per annum while that for the miscellaneous (usually the highest) rose from 41. 50 48. 00% per cent to 41. 50 51. 00% per annum. INTEREST RATES (Percent Per Annum) 1994199519961997 DecemberDecemberDecemberDecember 1. CENTRAL BANK a. Rediscount Rate (Bank Rate)33. 0045. 0045. 0045. 00 b. Treasury Bill Discount Rate(91days)29. 040. 5042. 8042. 48 2. DEPOSIT MONEY BANKS A. acceptation Rates. (%) i. Demand deposits4. 00-13. 445. 00-10. 005. 00-10. 005. 00-15. 00 ii. Savings Deposits13. 75-22. 5021. 50-31. 0022. 50-31. 5022. 50-32. 00 iii. Time Deposits 1 month22. 00-26. 5026. 00-32. 5029. 00-37. 0029. 00-37. 00 3 months14. 50-31. 0025. 00-36. 0025. 00-40. 5025. 00-39. 00 6 months14. 75-31. 0022. 75-37. 0032. 00-39. 2532. 00-39. 50 12 months14. 00-31. 0023. 50-36. 0027. 75-39. 5027. 75-39. 75 24 months22. 00-29. 2524. 00-35. 0027. 50-35. 0024. 00-35. 00 36 months26. 50-29. 0035. 0035. 0030. 00-38. 00 iv.Certificate of Deposits13. 75-24. 5023. 50-37. 0025. 00-37. 0025. 00-37. 00 v. Call Money25. 00-33. 5024. 00-34. 00 vi. Any other20. 00-24. 0022. 50-25. 0022. 50-33. 0022. 50-33. 00 B. change Rates. (%) i. Agriculture, Forestry & Fishing22. 50-35. 5028. 00-47. 0030. 00-47. 0035. 00-49. 00 ii. Export Trade20. 38-35. 5034. 25-47. 0030. 00-47. 0035. 00-49. 00 iii. Manufacturing26. 00-35. 5033. 00-47. 0039. 00-47. 0039. 00-49. 00 iv. Mining & Quarrying29. 00-37. 5030. 00-47. 5035. 00-47. 5035. 00-49. 00 v. Construction29. 00-37. 5039. 00-47. 5041. 00-47. 5041. 50-49. 00 vi. Other Sector29. 00-37. 039. 00-47. 5041. 50-48. 0041. 50-51. 00 Source Bank of Ghana During the year under review, total outstanding credit granted by commercial banks to public institutions and the private sector increased by ? 474. 8 billion or 64. 8 per cent to ? 1,207. 2 billion. This compares with an increase of ? 299. 8 billion or 69. 3 per cent in the previous year. The Commerce and pay sector recorded the highest increase of ? 84. 5 billion followed by coffee Mark eting sector which registered an increase of ? 78. 2 billion. Significant increases were also recorded in outstanding credit to Manufacturing (? 1. 5 Billion), Construction (? 53. 2 billion), service (? 49. 7 billion), Mining and Quarrying (? 36. 7 billion) and Import Trade (? 18. 8 billion). Credit for Cocoa financing showed an unusually large increase as a result of financial accommodation given to COCOBOD in the face of a larger than expected crop size. In conclusion, the various levels of interest rate (that is high or low) affect the economy in respective(a) ways (i. e. positively and negatively). However the optimum benefits derived from those varying levels of interest rates depends on prudent economic management.The interest rate problem does not rest with Government and the Bank of Ghana only but also the commercial banks. The rising rates of interest are acts perpetuated by the banks for more profit and these rates charged by the commercial banks are just too high and tha t is what hurt investors. In addition, the banks impose charges and commissions which are tout ensemble inexplicable. REFERENCES ?Business and pecuniary times issue number 689 ?Bank of Ghana Annual report (1997) ?The state of the Ghanaian economy (2004) ?The internet (Nii K. Sowa, CEPA, Inflation and interest rate fixation in Ghana) ?Article by Ampong Owusu Kwabena -Bsc engineering KNUST, Masters in international business (NORWAY), and Masters in Financial economic science (NORWAY). ?Managing Ghanas Dept. Nii K. Sowa, CEPA, Accra ?Henderson and Poole Principles of Economics ?David C. Colander Economics ?Miller, R. L and D. D. Van Hoose Money, Banking and Financial Market ? Miskkin F. S The Economics of Money and Banking and Financial Markets ? Dr. Henry D. Jackson An Introduction to Macroeconomics 1999 ? Dr. Henry D. Jackson- McConnell Brue Economics, 5th Edition.