Economist, Dr. Lord Mensah

An Economist, Dr. Lord Mensah, is hopeful the Monetary Policy Committee (MPC) of the Bank of Ghana will again reduce the policy rate to alleviate the impact of the COVID-19 pandemic on businesses and individuals.

The Monetary Policy Committee (MPC) of the Bank of Ghana is to announce its policy rate decision today, Friday, May 14, 2020 as part of efforts to find ways to mitigate the impact of the COVID-19 pandemic on businesses and individuals.

Dr. Mensah elucidated that decreasing the policy rate will help to topple the interest rate and reduce the cost of borrowing.

Earlier this year the Bank of Ghana reduced the policy rate by 150 bases points, which is from 16 to 14.5 percent as part of emergency responses the threats posed by the pandemic.

The policy rate, which is the rate at which the central bank lends to commercial banks, affects the cost of borrowing.

Speaking in an interview, Dr. Lord Mensah revealed that reducing the policy rate will help inject liquidity into the financial sector.

According to him,

“the policy rate was not reduced. And this was the first time they reduced it up to 14.5%. So, if you have a trend and there is a certain reduction, you look at the sustainability of that reduction. If they really want to have their policies going through very well or make sure that funds get to the people and businesses go about their normal activities, obviously they have to reduce it further and that would have impact.”

He added that he hopes the banks will heed to the directive this time if the policy rate is reduced.

“That once a time in about two years that it was reduced, I would say that it did not have the needed impact, but consistently, if it gets reduced at this time, I am hoping that the banks would respond to it and then various financial institutions will also respond to it,” he said.

The Ghana Association of Bankers earlier declared a cut in its benchmark interest rate by 200 basis points to lessen the economic impact of COVID-19 on businesses and individuals.

The 200 basis points reduction in interest rate interprets to a 2 percent reduction on bank loans.