Economist, Professor Godfred Bokpin has made a proposal for a revision of the formula used by the Bank of Ghana(BoG) in calculating its policy rate.
According to him, the current method inhibits the full impact of the policy rate in reflecting on the interest rate market, making it ineffective.
Even though the current formula is under review, Professor Bokpin tells Citi Business News the current method do not have a direct link with the policy rate but rather the Treasury bill rate.
He stated that the current formula used is the main reason why the recent marginal drop in the policy rate may not reflect in interest rate.
He was of the opinion that the market should have experience the marginal drop in the policy rate but the situation on the ground is different.
“If you look at the current formula that the central bank uses, I am told it’s under review now. But in its current state it doesn’t give a direct translation of the policy rate. So there is no direct link of the policy rate to the formula. What you find in the formula is rather the treasury rate which is adjusted with shareholders investors capital. If the reduction is going to cause an effect, then we have to review the formula.
He therefore advocated for a quick review of the formula to enable it reflects in the interest rate market anytime there is a marginal drop in the interest rate.