TITLE:
Determinants of Bank Deposits in Ghana: Does Interest Rate Liberalization Matters?
AUTHORS:
Eric Kofi Boadi, Yao Li, Victor Curtis Lartey
KEYWORDS:
Bank Deposits, Real Savings Rates, Exchange Rate Movements, Real Treasury Bill Rate and Gross Domestic Product
JOURNAL NAME:
Modern Economy,
Vol.6 No.9,
September
23,
2015
ABSTRACT: This research paper
examines the effect of interest rate liberalization on bank deposits in a developing
country Ghana. A deposit function model was specified with long term deposit as
the main dependent variable with real savings rate, real treasury bill rate,
exchange rate movement and gross domestic product as independent variables
while controlling for inflation. Ordinary Least Squares (OLS) method was used
to estimate the specified model which covered seasonally adjusted quarterly data drawn from Bank of Ghana and Ghana Statistical
Service. The data were input into a spreadsheet and exported into Econometric
View 7 which was used for processing the data. The results of the study
revealed that the interest rate liberalization and gross domestic product
jointly accounted for about 78% of the variation in the level of bank savings
deposits in Ghana. The study has also shown that the liberalization of the
interest rates has made it attractive for people with idle funds to save with
financial institutions especially the banks. It also revealed a negative
relationship between real savings rate and the real treasury bill rate expected
in a high inflationary environment. All the independent variables were
significant. It is therefore recommended that the Bank of Ghana remains resilience
on interest rate liberalization so that surplus funds can be made available for
investors and also to reduce the level of inflation in Ghana.