The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has reduced the policy rate by 50 basis point to 25.5 percent after holding it at 26 percent for months.

The policy rate, which is the rate at which the central bank lends money to commercial banks, before its reduction, had remained at 26 percent for four consecutive times.

The central bank’s Governor Dr. Abdul Nashir Issahaku attributed the reduction external factors, the cedi’s stabilization over the months as well as the recent drop in inflation figures.

Prior to today’s reduction there had been calls from the business community as well as some economists for the central bank to reduce the rate.

But some economists had predicted that the central bank will reduce the rate because all other economic indicators were in the right position to reduce the policy rate.

Economist Dr. Lord Mensah for example told citibusinessnews.com that “with all the indications on the ground we’ve seen inflation taken a dip and also stability in our foreign exchange rate, even though we are going to Christmas times, I think it calls for a review and for me, my expectation is that it comes down.

Once it comes down., it’s a sign in the right direction because at the end of the day the monetary policy rate is the base of all structures of interest rates , that’s the interest rate that central bank can do lending to the various banks and that in the end they extend the facility or the lending to individuals or business.”

Dr. Mensah however warned that, the effect of a reduction will take a while to realize its full effect since banks in the country will gauge the market before responding.

“You realize that the monetary policy rate for the past four quarters have been constant although have been stable and the review has not changed it in any way, so the banks are not going to react immediately if you adjust it down,” he said.

Ghana’s interest rates are one of the highest in the world with average base rates hovering around 27 percent.

Bankers have over the years asserted that the policy rate which is also used by banks to calculate their base rates must be reduced drastically in order for them to also reduce their rates.

Source: citifmonline.com