Just like the Ghana Union of Traders Association (GUTA), the Ghana National Chamber of Commerce and Industry (GNCCI) has lauded the Central Bank for the policy rate cut and hence expecting a reduction in lending rates in the coming months.
On Friday, September 27, 2024, the Monetary Policy Committee (MPC) of the Bank of Ghana announced a 200 basis point cut in the monetary policy rate, bringing it down from 29% to 27%.
The chamber says its members have been suffocating under the high lending rates prevailing in the country for the past two years.
In an interview with The High Street Journal, President of GNCCI, Mark Badu-Aboagye noted that lending rates are currently hovering around 35% to 40% due to the relatively high policy rate hence discouraging investment and expansion of businesses.
He therefore indicated that the 2 percentage points cut in the policy rate is welcoming news that met their expectations since the Chamber actually predicted the same ahead of the Monetary Policy Committee (MPC) meeting.
“It’s actually a welcoming news. We have been complaining about the high policy rate. Anytime the policy rate goes up, the commercial banks also increase their lending rates. At the moment interest rates are very high hovering around 35% to 40% so it’s been extremely difficult for businesses to borrow to expand and invest in their activities. For the past two years, we have had cause to complain about the high policy rate. We actually predicted a 2% reduction for a start, which the Central Bank also adhered to.”
Given the policy rate cut, Mark Badu-Aboagye indicated that the Chamber is optimistic about a reduction in lending rates in the coming months. He explained that generally, there is a lag of about two to three months for a cut in the policy rate to take effect at the commercial banks.
“We are happy and this is a good start. What we are also hoping for is that once the Policy Rate has come down, the Commercial Banks will follow suit and reduce their lending rates. We know it is not going to be immediate, there is a lag of two to three months. Within this period we expect that the lending rates will come down to at least give some relief to businesses,” the CEO explained.
The CEO therefore indicated that the reduction in lending rates will enable businesses with bankable projects that have been deterred by the high lending rates to revisit those activities and generally grow the economy.
Commenting on the views of some economists who believe the cut is insignificant to cause any major change in the lending rates, the CEO admitted that even the 27% is still high adding that Ghana’s economy is too rigid compared to the country’s peers.
However, he is convinced that the 2 percentage points cut is good enough to translate into a reduction in the lending rates.
The CEO explained that “Even the 27% is still significantly high compared to our peers and our neighboring countries. In other jurisdictions, just a 0.001 percent reduction in the policy rate can cause a significant reduction in the lending rates. The structure of our economy is such that it’s so rigid.
“With the policy rate even at 27%, the banks will also be a bit skeptical about significantly reducing their lending rates because some of them would have borrowed already and there is always a lag. But I am of the opinion that “a 2% reduction is sufficient enough to at least cause a reduction in the lending rates.”
