Policy rate to remain at 13.5%, says IEA ahead of BoG’s announcement on Monday
The Institute of Economic Affairs (IEA) has said the Central Bank will maintain its monetary policy rate at 13.5 percent for the next two months.
The assertion by the IEA comes on the back of the BoG’s 102nd Monetary Policy Committee meeting which ends today, September 24, 2021.
According to the IEA, the BoG is faced with pressure from President Akufo-Addo to cut the key base lending rate as well as other demands to increase it because of rising inflation and other factors.
“The MPC, in fact, is faced with a very challenging decision at this juncture, given these competing demands or interests. In the circumstance, our expectation is that the Committee will go for the safest option, that is STAY PUT!—implying that it will keep the PR [Policy Rate] unchanged at 13.5%.
“Choosing this option, however, will not make the problem of high lending rates go away. The BoG will only be postponing the solution; the problem will continue to haunt us!,” said the IEA.
The think tank has blamed the government for the high cost of credit in the country.
According to its Executive Director, Dr John Kwakye, the high lending rates by commercial banks in the country is due to government’s high appetite for borrowing from commercial banks.
He therefore suggested to the BoG to regulate the spread between lending rates by banks and the monetary policy rate to drive down lending rates or interest rates on loans close to the Bank’s policy rate.
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A suggestion which was rejected by the Ghana Association of Bankers (GAB).
Reacting to the GAB’s rejection of the BoG regulating the spread between lending rates by banks and the monetary policy rate, the think tank noted that, “The IEA also wishes to reemphasise that capping the spread between the lending rate and the policy rate, and regulating other financial charges, do not amount to introducing a “control policy” in the financial industry, as some people would want to suggest.”
Adding that the Central Bank will only be exercising its regulatory mandate as most central banks do.
“Regulating lending rates and prices of financial services is key as it will ease the burden on consumers of financial services, while also easing the cost of investment as a vehicle for catalysing the growth of the economy. The BoG, indeed, has a national duty to attend to the incessant calls by governments, businesses and CSOs to address what is obviously one of the most important hindrances to the progress of the Ghanaian economy.”
The Monetary Policy Committee (MPC) of the BoG is presently holding its 102nd meeting which ends Friday, September 25, with an announcement of the policy rate agreed on by the Committee on Monday, September 27, 2021.
The meeting is being held at a time of heightened concern about the persistence of high lending rates in the country. This concern has given further focus recently by President Akufo-Addo when he tasked the newly constituted Board of the BoG to address the problem of high lending rates in the country.
