A banking consultant, Nana Otuo Acheampong, has described as unexpected the Central bank’s decision to reduce the policy rate to 13.5%. According to him, this poses as great news for Ghanaians.
His comments follow Governor of the Bank of Ghana, Dr. Ernest Addison’s cut on policy rate to 13.5%.
It wasn’t expected but that’s the beauty of finance. When the unexpected comes, then it helps the market to move. Now, this non-expectation will mean that people will now have to readjust to the good news and so it’s most welcome”.
The move is expected to impact on the cost of credit in the next two months and stimulate economic growth.
Mr. Acheampong, however, revealed that the reduction may reflect in the cost of credit although it will take a while to be exacted.
“It should. It’s been explained over and over again by the governor that the transmission rate differs when they increase from when they reduce. If this had been an increase today, tomorrow, the banks will be adopting the new increase. Now being a reduction, they take their time, that’s because some of the cost involved are fixed costs and dealing with fixed costs is different from dealing with variable cost. So, gradually, they will reduce…”
Impact of reduction on private sector
Commenting on the impact of the reduction on the private sector, Mr. Acheampong revealed that the reduction came in the midst of the pandemic. That notwithstanding, he’s hopeful of the private sector receiving “more” loans from banks.
“There’s no law in a free market to say that the market is free and at the same time you set prices, it has to be allowed. The moral situation is where you call them and say please help us to help the private sector. On the other hand, as he rightly said, if the NPLs are at the level that they are now; then there’s no encouragement to ask them to stop…
“However, as soon as it comes under control; the restrictions are lifted and I’m sure the banks will follow suit and give out more loans”.
Touching on the readiness of banks to incorporate digital currency, the banking consultant revealed that plans are far advanced in realizing that.
“Digital currency as far back as January, February, the banks had an understanding with US company to do what we call the sandbox system; where the fintech will test the system for its robustness before it comes out. I was given a timeline around September, October, that BoG will come out with the outcome of that; that’s why the governor said is well advanced, so I think the sandbox system is still ongoing and they will come up”.
Development bank versus commercial banks
The Governor in his statement, also gave an assurance on equipping the development bank with right tools to achieve its mandate.
Commenting on this, Mr. Acheampong revealed that there has been some confusion between development and commercial banks. He however, stated that, the commercial banks and development banks are under two separate laws.
“I’m glad that we’ve been able to clear the confusion between the development banks and the commercial banks. They have set out what their mandates are… but I keep saying that the only confusion appears to have been the use of the word bank. Because if you go through the countries in the world that have development banks; more than 50% of them are not using the word bank in their name. This same confusion came when we set up Eximbank.
“So, this is a development institution and I think its most appropriate if you use that word than a bank”.
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