Hopes of businesses have been dashed as an economist has revealed that the recent two percentage points cut in the monetary policy rate won’t necessarily lead to a significant reduction in lending rates.
The Monetary Policy Committee (MPC) of the Bank of Ghana on Friday, September 27, 2024, announced a cut in the monetary policy rate by 200 basis points. This reduction in the basis points has resulted in the policy rate decreasing from 29% to 27%.
This is the first reduction in the policy rate since January 2024.
Professor of Economics and Finance at the University of Ghana Business School, Prof. Godfred Alufar Bokpin says the 200 basis points reduction is insignificant to lead to a major reduction in interest rates for business.
Speaking in an exclusive interview with The High Street Journal, the economist explains that the 200 basis points reduction leading to a policy rate decrease from 29% to 27% compared to the prevailing lending rate of 30% cannot cause any major changes in the market.
The economist says the reduction is too small to cause businesses to rejoice over a significant reduction in the cost of credit.
He said, “It will not affect businesses positively in any way. 200 basis points reduction is too small to make any meaningful impact.”
He further argues that already, the Bank of Ghana is undertaking rigorous measures such the gold coins, and cash reserves among others to mop up excess liquidity. This liquidity tightening measures, Prof. Bokpin says is bad news for the private sector in terms of accessing credit.
He explains that whenever there are liquidity tightening measures, it denies credit to the private sector.
“In addition, there are so many other tightening they have done in the market that overall when put together, it’s not a relief. The ultimate lending rate is over 30%. The more you are mopping up excess liquidity, the more you are denying credit to the private sector so how is that going to offer comfort to the private sector,” Prof. Bokpin revealed.
