‘Reduced’ policy rate not good for businesses - Economist

Economist, Dr. Lord Mensah has ruled out an immediate reaction from commercial banks following the reduction of the policy rate.

Though he has lauded the Bank of Ghana (BoG)’s decision to reduce the rate, he describes the figure as marginal.

According to Dr. Lord Mensah, businesses must therefore be guarded in their expectations of a reduction in interests charged on credit. “For businesses, I’d advise them not to be in a haste to take decisions based on the reduction since the margin is not that high. It wouldn’t be advisable to start borrowing and spend anyhow because the prospects are high,” he opined.

“Businesses are supposed to keep calm and consider the prospects in the future for the 25.5 percent; the margins are not high,” he added. The BoG’s Monetary Policy Committee (MPC) on Monday, reduced the policy rate for commercial banks by 50 basis points.

The figure has therefore declined from 26 percent to 25.5 percent. Prior to the announcement on Monday, Dr. Lord Mensah stated that the economic conditions merited a reduction since the high interests were a disincentive to businesses.

Meanwhile he has described the latest development as an indication of a further drop in the policy rate to compel commercial banks to reduce their base rate which is about 28 percent on the average.

“It is a step in the right direction for businesses as the signal has come which shows that interest rates have started going down but this shouldn’t raise their mood in terms of planning.”

Until Monday’s decision, the MPC had kept the policy rate unchanged at 26 percent for four consecutive times this year. The policy rate is the rate at which the central bank lends money to commercial banks in the country.

Source: citifmonline.com