To read the full version of this content please select one of the options below:

Macroeconomic determinants of interest rate spreads in Ghana

Samuel Kwabena Obeng (Department of Economics, Kwame Nkrumah University of Science and Technology (KNUST), Kumasi, Ghana)
Daniel Sakyi (Department of Economics, Kwame Nkrumah University of Science and Technology (KNUST), Kumasi, Ghana)

African Journal of Economic and Management Studies

ISSN: 2040-0705

Article publication date: 13 March 2017

Abstract

Purpose

The purpose of this paper is to examine macroeconomic determinants of interest rate spreads in Ghana for the period 1980-2013.

Design/methodology/approach

The autoregressive distributed lag bounds test approach to cointegration and the error correction model were used for the estimation.

Findings

The results indicate that exchange rate volatility, fiscal deficit, economic growth, and public sector borrowing from commercial banks, increase interest rate spreads in Ghana in both the long and short run. Institutional quality reduces interest rate spreads in the long run while lending interest rate volatility and monetary policy rate reduce interest rate spreads in the short run.

Research limitations/implications

The depreciation of the Ghana cedi must be controlled since its volatility increases spreads. There is a need for fiscal discipline since fiscal deficits increase interest rate spreads. Government must reduce its domestic borrowing because the associated crowding-out effect increases interest rate spreads. The central bank must improve its monitoring and regulation of the financial sector in order to reduce spreads.

Originality/value

The main novelty of the paper (compared to other studies on Ghana) lies on the one hand; analysing macroeconomic determinants of interest rate spreads and, on the other hand, controlling for the impact of institutional quality on interest rate spreads in Ghana.

Keywords

Citation

Obeng, S.K. and Sakyi, D. (2017), "Macroeconomic determinants of interest rate spreads in Ghana", African Journal of Economic and Management Studies, Vol. 8 No. 1, pp. 76-88. https://doi.org/10.1108/AJEMS-12-2015-0143

Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited