The Relationship between Average Savings Deposit Rates and Average Commercial Bank Lending Rates in Ghana

Abstract

Background: This study explores the relationship between average savings deposit rates and average commercial banks’ lending rates in Ghana from 2000 to 2020. Appreciating the connection is essential for developing successful policies that promote financial intermediation and economic growth. Methods: A quantitative research approach was adopted by utilising the ARIMA model to forecast trends in average savings deposit rates and analyse their future behaviour. The study controlled for macroeconomic factors such as inflation (INF) and inter-bank weighted average (IWA) to assess their impact on both savings and lending rates. Results: The findings reveal a significant positive correlation between average savings deposit rates and average lending rates with a correlation coefficient of 0.75 (p < 0.01). Inflation negatively impacts lending rates as evidenced by a coefficient of -0.40 (p < 0.05). Additionally, IWA exerts a minimal but favourable influence on average savings deposit rates. Conclusions: The results underscore the need for effective policies aimed at stabilising savings deposit rates and fostering competition within the banking sector. Such measures are essential to enhance financial intermediation and promote sustainable economic growth in Ghana.