It follows what they cite as favourable conditions that warrant a further reduction in the rate at which the central bank lends to commercial banks for onward lending to customers.

The Monetary Policy Committee (MPC) of the Bank of Ghana is later today, Monday, expected to conclude its meetings with an announcement of the policy rate which is at 20 percent.

Speaking to Citi Business News ahead of the announcement, an Economist with Barclays Africa’s sub Saharan group, Ridle Markus said he is highly optimistic of a reduction.

In his view, the expected increase in oil exploration activities and the projection of a stable currency, should prompt a drop in the policy rate.

“We’re not worried about the currency; there’s a potential for 2.5 billion dollar Eurobond inflows coming through in the next couple of months. Also, the additional oil inflows will be supportive of the currency. There’s a strong case to be made that the currency could actually continue to remain around current levels even drifting slightly stronger, which then becomes very favorable to inflation. So those are a couple of reasons why I think they should be less precautionary a little bit and for cutting the policy rate.”

The Bank of Ghana has reduced the policy rate by 550 basis points over the last one year.

The figure has dropped from 25.5% to 20 percent currently.

The Managing Director of Zenith Bank, Henry Oroh also tells Citi Business News he is hopeful the MPC will reduce the policy rate to sustain the impact on private sector growth.

“Interest rates have also moved down, because the government wants to support the real sector. If interest rates go up, the cost of business also goes up but the government wants to create an environment with cheap cost of business. And I think they’ve done so well with their previous Monetary Policy Committee decisions they’ve taken.”

He added, “So I believe whatever decision they take this time around will be complementary to the previous decisions, and it will all be driven to creating macro-economic stability in the area of interest rate, inflation and exchange rate.”

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By: Pius Amihere Eduku/citibusinessnews.com/Ghana

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The central bank believes that the development should also help correct the balance sheets of banks by reducing the Non-Performing Loans.

This was among the key issues raised at a public lecture on the effectiveness of Ghana’s Monetary Policies organized by the Department of Economics at the University of Ghana, Legon.

NPLs and rising interest rates

The central bank’s anticipation of a reduction in the interest rates of commercial banks is due to what it describes as a potential setback to commercial banks’ survival if the current situation goes unresolved.

The Head of Research at the Bank of Ghana is Dr. Benjamin Amoah therefore expected that banks will respond soon.

“It is at the banks’ own peril that they do not respond positively; if you are charging someone 45 percent and another is making thirty percent return. But the one saving the money is expected to reduce its expectations yet the other is not paying his or her loan hence leading to the rise in Non-Performing Loans currently estimated at 20 percent. It is in the bank’s interest that they act rationally as some people come to borrow with no intention of paying back. One in five of your assets as banks are not working,” he stated.

Policy rate drops by 550 basis points

For last year (2017) alone, the Bank of Ghana reduced its policy rate which is the rate at which commercial banks borrow from the central bank, by 550 basis points.

The rate dropped from 25.5 to 20 percent.

This was subsequently maintained by the Monetary Policy Committee (MPC) in January this year (2018).

But the latest Annual Percentage Rates (APR) and Average Interest (AI) rates report shows that interests on loans for various categories, averaged 30 percent as at January this year.

The President of the Ghana Association of Bankers and the Managing Director of Stanbic Bank, Alhassan Andani justified the reason why the reduction in interest rates may have taken that long.

“At a point in time we rationalized the currency where we had the cedi trading almost one cedi to the dollar it is the same stock of mining companies, same stock of COCOBOD monies, etc. nothing new has come in to take advantage of that economic variable.”

Give inflation targeting more time

For January 2018, the Monetary Policy Committee of the Bank of Ghana attributed its decision to maintain the policy rate to its plan to reduce inflation to a target of 8 percent plus or minus 2 in the next few months.

This objective has lasted with the central bank for over a decade now, raising a lot of concerns over its impact on the financial sector.

But reacting to how the inflation targeting plan has performed so far, the Head of Economics Department, Professor Peter Quartey stressed the need to monitor the impact for some time to assess its effectiveness.

“It is too early to discuss whether or not we should abolish inflation targeting; it is working for us. Let’s rather see if we could fine tune it and then overtime see whether we could opt for nominal GDP and its arguments in support of it,” he suggested.

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By: Pius Amihere Eduku/citibusinessnews.com/Ghana

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Headline inflation surprised when it fell sharply in January to 10.3%; year on year from 11.8% in December.

This was well below our expectations for a marginal increase to 11.9%, largely owing to base effects.

The deceleration in inflation will have been positively received by the Bank of Ghana’s MPC, which was concerned about underlying inflationary pressures at the January meeting.

It suggests that there is room for a resumption of policy easing at the March meeting.

Inflation fell sharply to 10.3% year on year in January from 11.8% in December as inflationary pressures moderated though base effects largely underpinned the decline. 

Month-on-month, inflation was 1.4% in January compared with 2.8% in January 2017.

Non-food inflation fell to 12.0% year on year from 13.6% in December 2017 following more subdued increases than is the case normally in January for several larger categories, including clothing & footwear, utilities and transport.

As a result, inflation for these components fell on a year-on-year basis in January, with the most noticeable decline being that of utilities, which fell from 9.1% in December to 7.5% in January.

Similarly, food inflation, despite rising by 2.1% month on month (3.3% in January 2017), fell from 8.0% year on year in December to 6.8% in January as several sub-categories saw inflationary pressures ease.

January’s inflation print takes inflation closer to the 8% +/-2pp target range. 

The Bank of Ghana’s MPC will be welcoming of the sharp drop in inflation to close to the upper limit of the target range after it expressed concern about rising underlying inflation at the January MPC meeting.

At the time, the committee unexpectedly kept its policy rate unchanged to “ensure that the inflation target horizon is maintained” and the target range is achieved.

With the outlook for the currency bullish given it is likely to be well supported by strong inflows, we expect inflation to dip into the target range by Q2 18 and remain in single digits for the remainder of the year.

The central bank revealed in January that its weighted inflation expectations by business, consumers and the financial sector declined in December and we expect expectations to decline further in the coming months.

We expect the lower inflation print in January to see a resumption in policy easing as soon as the

March MPC meeting. 

Unless there is some upside shock to the February inflation print, which we do not anticipate, there is little reason to further delay additional policy easing at the March meeting.

The committee has so far been very cautious but we see scope for at least another 400bp in rate cuts over the next few months.

Looking at the local debt market, today’s inflation print, along with the likelihood of further policy rate cuts, suggests a continuation in the decline in yields.

That said, with yields having already fallen steadily in recent months, further downside may be limited.

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Source : Barclays Africa Group

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It comes on the back of the decision by the Monetary Policy Committee (MPC) to maintain the policy rate at 26 percent.

Although the CEO of the AGI, Seth Twum Akwaboah says the decision could reflect a relative stability in the economy, a reduction would have been much appreciated.

“Maintaining the policy rate at 26 percent means that cost of credit will not come down but now considering the stability achieved since the beginning of the year, businesses were expecting a bit of reduction to give us some comfort because by reducing it, it is very likely that our cost of credit will also come down.”

The Monetary Policy Committee of the Bank of Ghana on Monday, kept the policy rate unchanged for the fifth consecutive time since it was last increased in November 2015.

Governor, Dr. Abdul Nashiru Issahaku explained that the decision was influenced by the stability in the depreciation of the cedi inflation over the period.

Mr. Akwaboah was however optimistic of a reverse in the trend soon.

“This decision also means that stability has been consolidated for quite a while, we also have a positive outlook that in the coming months, we will see further reduction.”

An economist, Dr. Eric Osei Asibbey described the central bank’s decision to maintain the policy rate at 26 percent.

He explained to Citi Business News the move will constrain economic growth.

“Businesses are reeling under difficult conditions. If you look at the fact that the business environment is not too conducive, utility bills have gone up, taxes are being raised, and if you also have to borrow at that rate, then of course we are not creating that kind of conducive environment for businesses to thrive,” he lamented.

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By: Jessica Ayorkor Aryee/citibusinessnews.com/Ghana

The post AGI wants policy rate reduced appeared first on Citi 97.3 FM - Relevant Radio. Always.