A Senior Lecturer of Finance at the University of Ghana Business School, Dr. Lord Mensah has expressed surprise at the Bank of Ghana’s decision to maintain the policy rate at 26%.
According to him, macro economic indicators such as the decline in inflation, should have reflected in a drop in the policy rate.
Dr. Mensah’s comment follows the Monetary Policy Committee’s decision to maintain the prime rate at 26 percent at its 71st Monetary Policy Committee (MPC) meeting, on Monday, July 18, 2016.
“I think it is a surprise, with the maintenance of the policy rate. There is some kind of uncertainty around it as one is not sure when the rate will come down or move up. But for me looking at all the indicators on the ground, if you are really abreast with all that is happening on our macro-economic front, then I presume the rate should have come down,” he remarked.
“We have seen inflation going down and most of the time the monetary policy rate is basically on inflation targeting and if inflation is coming down, it shows that there is a signal that interest rates can come down for businesses to borrow,” he added.
He was however of the opinion that the central bank may have maintained the rate due to low liquidity.
“Now, if inflation is coming down, that means we don’t have much money chasing more goods in the economy and therefore this only shows that there is lack of money in the system,” he explained.
Meanwhile, Dr. Mensah predicted that the cost of borrowing will remain the same especially as the monetary policy rate is still pegged at 26%.
“If the monetary policy rate which is the basis of all interest rates, that is the rate that the various banks can borrow from the Central Bank for them to do all lending to businesses and individuals is maintained, I don’t think we will realize any change in the interest rate. So with cost of borrowing, we should not expect that interest rate to change, cost of borrowing will remain the same,” he stated.
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By: Jessica Ayorkor Aryee/citibusinessnews.com/Ghana