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This paper investigates the determinants of interest rate spread in Namibia for the period 1996-2010. The investigation is conducted through cointegrated vector autoregression (VAR) or multivariate cointegration methods. The investigation reveals that interest rate spread in Namibia is determined by Treasury bill rate, inflation rate, the size of the economy, financial deepening, bank rate or discount rate and exchange rate volatility. Treasury bill rate, inflation rate and bank rate are associated with an increase in interest rate spread. The size of the economy and financial deepening are associated with a decrease in interest rate spread. The results suggest that an increasing interest rate policy pursued by the government can cause interest rate spread to rise. Increase in the cost of funds to commercial banks may be passed to consumers in the form of higher interest rate spread. An increase in the cost of doing business will cause interest rate spread to rise. Interest rate spread can be reduced by increasing the size of the economy which allows for economies of scale and greater competition. Financial deepening, which allows a high level of interbank competition, can also reduce the interest rate spread.

AbstractThis paper investigates the extent to which interest rate spreads is associated with macroeconomic instability in Ghana. Using the Maastricht Criteria, quarterly data on inflation, budget deficit, prime rate, external debt and exchange rate were collected from 2008 to 2018 to construct a composite macroeconomic instability index. The resulting index was used to evaluate the long‐run and short‐run relationship between macroeconomic instability and interest rate spreads with the aid of the autoregressive distributed lag and bounds test approach to cointegration. The results revealed that macroeconomic instability had a positive long‐run and short‐run relationship with interest rate spreads. Non‐performing loans and loan‐to‐deposit ratio are found to be negatively related to interest rate spreads both in the short and long run, although the relationship is not statistically significant. From a policy‐oriented point of view, it is recommended that policy makers concentrate on managing macroeconomic instability as a means of boosting savings and investment.