Commercial Banks in Ghana are optimistic about a reduction in the Monetary Policy Rate which they believe will lead to a further fall in interest rates.
The hope of these banks stems from the sustained consecutive year-on-year decline in inflation. Ghana’s headline inflation slowed for a fourth consecutive month in July to 20.9% from 22.8% in June after similar drops in April and May of this year.
The current inflation rate is a very significant progress given the high rate of inflation in December 2022. The rate in 2022 peaked at 54.1% in December. After a steady decline with occasional fluctuations, the rate now stands at 20.9%.
With the recent trajectory of downward inflation, commercial banks are hopeful that the Central Bank will reduce the monetary policy rate which will translate into a reduction in the Ghana Reference Rate and then interest rates.
According to the banks, given the high inflation rate in times past, the Monetary Policy Committee of the BoG was forced to keep a high policy rate hence leading to high interest rates.
The high interest adversely impacted the banking industry which led to the rise in Non-Performing Loans (NPLs).
This is confirmed by the Managing Director of Ghana Commercial Bank (GCB), Mr. John Kofi Adomako who revealed that NPLs in the industry have risen. He was however quick to add that for GCB which is owned by the state, it has a rather has low NPLs compared to the industry levels.
“NPLs are high, over 20% in the industry. GCB as an individual bank, NPLs have come down slightly but they are still high and not where we want to be. They are outside of our risk capital. We still need to work hard to bring NPLs down,” the GCB MD noted.
Mr, Kofi Adomako who was speaking at the Fact Behind the Numbers Series at the Ghana Stock Exchange further explained that with the sustained low levels of inflation, it is anticipated that the policy rate will drop which will lead to a decrease in interest rate.
He explains that a decline in interest rate will help banks deal with the rise in Non-Performing Loans and also more importantly help them to implement sustainable lending programs to support Ghanaian businesses and individuals.
“The real fundamental issue is interest rates are high. We have to find ways and means to get our customers to attain liquidity and financing without necessarily borrowing. We are doing a lot of structured trade finance types of transactions,” he indicated.
He added: “I know the Bank of Ghana has been watching very closely. The pressures are still there. I think at the right time, the Monetary Policy Rate will come down, GRR [Ghana Reference Rate] will come down. We will get ourselves to more sustainable lending programs to support Ghanaian businesses and individuals. It is in the interest of banks that interest rates are sustainable. If interest rates are sustainable, we can lend more, we can create more money and we can create more value.”
It is worthy to note that credit ratings agency, Fitch Solutions has earlier predicted a possible reduction in monetary policy rate following the sustained decline in inflation. Other economists have also predicted the same.
A reduction in the policy rate will be good news for the business community. This is because a policy rate reduction will possibly translate into a fall in interest rate leading to a low cost of credit for businesses.
