Bank of Ghana may possibly maintain or reduce the policy rate as most businesses are struggling to rub two pennies together. Dr. Lord Mensah, an Economist made this revelation as he anticipates an increase in the policy rate in the near future.
In an interview, he intimated that the Central Bank’s reduction in the rate will be a great move as it will give a breather to most businesses in these trying times.
“If you look at the happenings on the ground coupled with the COVID-19 cases, you could see that businesses are not that active. And in every economy when businesses are not all that active, it could be as a result of the bank not providing enough funds and as a result of money not being in people’s pocket to enjoy the services rendered by established businesses”.
“…And so as the Monetary Policy Committee that controls how money comes into the system and how money is taken out of the system, I will call for an ease in the system that is a reduction. This means that if we are to go by the transmission of the monetary policy into the interest rate structures, then obviously we could say that a reduction will build up into lower interest rates so that businesses and individuals can easily walk to the bank to do business”.
The Policy rate will invariably determine the rate at which the Bank of Ghana lends to commercial banks, which subsequently influences interest rate on loans.
On Wednesday, July 22, the Monetary Policy Committee of the Bank of Ghana will commence its meeting to assess the health of the economy and announce among other things, a policy rate.
Currently, the impact of the coronavirus has had a dire consequence on the global economy, and as a result, he Monetary Policy Committee (MPC) of the Bank of Ghana, earlier this year maintained the policy rate at 14.5 percent.
That was the first time the rate had been kept unchanged in many months after it was reduced by 150 basis points.
The MPC at the time said the decision to keep the policy rate unchanged, was to control inflation from going out of gear.
Bank of Ghana’s reduction in policy rate
The Monetary Policy Committee of the Bank of Ghana (BoG) lowered the policy rate by 150 basis points from 16 percent to 14.5 percent in the month of March.
It was the first since 2019 that the central bank had lowered the policy rate. Before the reduction, the Bank of Ghana has since January last year kept the policy rate unchanged six times.
According to the Central Bank the Coronavirus pandemic has “significantly heightened uncertainty in global financial markets, causing a sharp downturn of global stock prices and a steep rise in emerging markets’ sovereign bond spreads. These unfolding developments have further worsened the pre-existing weaknesses in global growth and caused major disruptions to global supply chains with adverse implications for the global economy”.
“An initial assessment by the Organization of Economic Co-operation and Development suggests that global growth could slow by about 0.5 percent this year, given the scale of disruptions to current economic activity”.
“The slowdown could be deeper in a worst-case scenario, especially if the pandemic is not effectively contained in the near-term. The potential adverse effects of COVID-19 on growth, along with the sharp fall in commodity prices, will weigh heavily on economic activity in emerging market and frontier economies”.
