Determinants of Interest Rate Spread in Ghana

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MAY, 2016.
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The study investigated the banking industry and macroeconomic determinants of interest rate spread in Ghana in an ARDL framework. The study revealed that in the long run, Treasury bill rate and the total deposit mobilized by the banks have a significant negative effect on the interest rate spread, whiles exchange rate have a significant positive effect on the interest rate spread. In the short run, real GDP, treasury bill rate, total deposit mobilized by the banks and exchange rate have a negative effect on interest rate spread whiles inflation has a positive effect on interest rate spread. The study has demonstrated the importance of macroeconomic stability in reducing the spread in interest rate in Ghana. Specifically, inflation, exchange rate, Treasury bill rate and real GDP have important implication on the spread in interest rate in Ghana. It is therefore imperative for policy formulation to keep inflation rate as low as possible through the implementation of appropriate monetary and fiscal policies. Actionable steps should be taken to work at stabilizing the depreciation of the cedi against the dollar through increased exports and less imports by enhancing the activities of the Ghana Export promotion Council. Also, the Government should search for alternative ways of generating revenues rather than borrowing from the domestic market through treasury bills as this will keep the rate on treasury bills low. Furthermore, steps should be taken to end the power crisis which has crippled economic growth in the country since real GDP was found to negatively influence interest rate spread.
A dissertation presented to the Department of Economics, College of Humanities and Social Sciences In partial fulfilment of the requirement for the degree of Master of Science in Economics (Money, Banking and Finance).