Economist with the Institute of Statistical, Social and Economic Research (ISSER), Professor Peter Quartey, has maintained that business may have to be measured with their expectation of a drop in interest rates despite the central bank’s decision to keep the policy rate unchanged at 16 percent.
The Monetary Policy Committee (MPC) at the end of its regular meetings for May 2019, maintained the policy rate for the second consecutive time in 2019.
For Professor Peter Quartey, the decision not to adjust the policy rate was not surprising as factors such as inflation, cedi depreciation, amongst others have remained relatively stable at least for the first three months of the year.
“If you look at some of these variables, you will find that there haven’t been major changes and therefore a change in the policy rate will be quite difficult because the policy rate sends signals to the banking sector regarding how much the Bank of Ghana is willing to lend to commercial banks which will mean they may also have to reduce their rates,” he told Citi Business News.
He added: “A reduction will also not be good because the country has foreign denominated bonds so it is going to affect the market as well.”
The move by the Monetary Policy Committee (MPC) of the Bank of Ghana to reduce the policy rate initially, may have been influenced by a long term decision to reduce the lending rates of commercial banks to customers.
But this reflection has taken a relatively longer period to be realized.
Currently, the commercial banks adopt the Ghana Reference Rate system in setting their interest rates on loans.
This new formula replaced the base rate as part of the Bank of Ghana’s efforts to make Ghana’s interest rate regime competitive.
Consumers comprising businesses and individual customers of banks may have high hopes that the decision to keep the policy rate unchanged for the second time may ultimately lead to a drop in interest rates paid on loans.
However, Professor Peter Quartey wants such customers to be measured in their expectations.
“The cost of funds, risk environment and others impact interest rates in Ghana. Non Performing Loans still remain high and banks will have to recover their costs which stand at about eighty percent. So certainly banks cannot reduce their lending rates.”