The central bank on Monday, March 26, 2018 announced that it has reduced the policy rate by 200 basis points after concluding its Monetary Policy Committee (MPC) meetings for the quarter.

The Governor of the Bank of Ghana, Dr. Ernest Addison among others mentioned that the decision was arrived at following indications that other variables point to the central bank’s ability to meet the annual inflation target.

But some industry players that Citi Business News has been speaking to have expressed diverse thoughts on the impact of the reduction.

For the Head of the Economics Department of the University of Ghana, Prof. Peter Quartey, the reduction has been anticipated.

He believes it should propel growth of private sector businesses.

“We can also see that the exchange rate has been stable and then inflation has inched up slightly with expectations not likely to increase. So based on all of these and then also in line with government policy of providing cheaper access to credit to grow the private sector, I think a decline in the policy rate is more than welcome. It is however my hope that the banks or the money market will responds positively by also reducing their lending rates.”

Another Economist with GN Research, Emmanuel Zewu however described the 200 basis point as being a little on the high side.

Though he admits to the need for a reduction, he stressed that the cedi’s relative depreciation against some international currencies.

“If you look at it, even though the cedi has been stable especially when it comes to the dollar rate , the other major currencies especially the Pound and the Euro are not performing too well; then you combine that with increasing petroleum prices on the international market essentially, there will be inflationary powers going forward. So I was thinking the monetary policy committee will be more conscious or cautiously reduce the monetary policy rate but the 200 basis points reduction is more or less on the high side for me,” he explained.

Meanwhile the CEO of the Private Enterprise Federation, Nana Osei Bonsu says the business will be comfortable only when commercial banks let it reflect in their interest rates.

“What we will want to see is that this policy rate has a direct correlation, a direct impact so when it is reduced by 200 basis points we want that to reflect in the interest rates that will be charged by the universal banks, we want to see the 200 basis points or at least 150 basis points in that regard,’ he stated.

Nana Osei Bonsu added, “So what we need is a formula that allows the banks to calculate their base rates that allows the risk premium. So if the Bank of Ghana can use its authority to make a meaningful impact on the interest rates, it should have another formula that will allow the impact of the policy rate to be direct so that it will reflect in a reduction of interest rates.”

For 2017 alone, the Bank of Ghana reduced the policy rate by 550 basis points.

The figure dropped from 25.5% to 20%.

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By: Pius Amihere Eduku & Anita Arthur/citibusinessnews.com/Ghana

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This represents a 200 basis points reduction in the policy rate which was at 20 percent.

Today’s announcement of a reduction is the first after the rate was maintained earlier in the year.

The policy rate is the rate at which the central bank lends to commercial banks for onward lending to their customers.

The Governor of the Bank of Ghana, Dr. Ernest Addison speaking at a press conference noted that the decision to reduce the rate was based on the central bank’s moves to achieve the annual inflation target.

According to him, the Monetary Policy Committee (MPC) decided to reduce the policy rate to also help ease the burden of interest payments on the budget.

“The Committee noted that the current inflation forecast provides scope for monetary policy to realign interest rates, translate the disinflation gains achieved so far to the market, and reinforce the fiscal consolidation process by easing the burden of interest payments on the budget. Under these circumstances, the Committee decided to reduce the monetary policy rate by 200 basis points to 18.0 percent”.

Dr. Addision explained that the disinflation process firmed up over the first two months of the year, with significant moderation in price pressures.

He stated that both headline and core inflation broadly trended down, alongside easing inflation expectations, an indication that the disinflation process remains well-anchored.

“Our latest forecast suggests that the medium-term inflation target of 8±2 percent is within the forecast horizon and we are on course to meeting the inflation target band,” he assured.

He made the disclosure when he addressed the media on Monday morning.

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By: Lawrence Segbefia/citibusinessnews.com/Ghana

The post BoG reduces policy rate to 18% appeared first on Citi 97.3 FM - Relevant Radio. Always.

This was announced after the Monetary Policy Committee (MPC) finished its 79th meeting which is the final for 2017.

This is the fourth reduction for this year by the Central Bank.

By this, the policy rate has been reduced from 25.5 percent to 20 percent this year.

Speaking at a press conference, the Governor of the Bank of Ghana, Dr. Ernest Addison attributed the reduction to the inflationary trends and medium targets of the fiscal policy.

“There are indications that the oil-induced growth is gaining momentum while the slower non-oil growth remains a concern and may require additional impetus to boost overall growth towards its full potential.”

“However, recent developments such as the implementation of growth-enhancing government policy initiatives, positive sentiments from businesses and consumers as well as improvement in electricity supply are supportive of non-oil growth.”

The Governor added, “These notwithstanding, slower private credit expansion and tightening credit stance on enterprises could tamper with growth momentum. Under the circumstances, the committee decided to reduce the policy rate by 100 basis points to 20 percent.”

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By: Lawrence Segbefia/citibusinessnews.com/Ghana

The post BoG reduces policy rate to 20% appeared first on Citi 97.3 FM - Relevant Radio. Always.

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.