The Institute of Economic Affairs is projecting an unchanged Policy Rate of 13.5% by the Bank of Ghana for at least the next two and half months.
According to the economic and policy think tank, the Monetary Policy Committee is faced with pressure from President Akufo-Addo to cut the key base lending rate –the rate at which it lends to commercial bank, though there are other demands to increase it because of rising inflation and other factors.
In a statement, the IEA said “the MPC, in fact, is faced with a very challenging decision at this juncture, given these competing demands or interests. In the circumstance, our expectation is that the Committee will go for the safest option, that is STAY PUT!—implying that it will keep the PR [Policy Rate] unchanged at 13.5%.”
“Choosing this option, however, will not make the problem of high lending rates go away. The BoG will only be postponing the solution; the problem will continue to haunt us!”, it pointed out.
At a recent forum, the IEA blamed the government, the Bank of Ghana and banks for the high cost of credit in the country.
It also pointed out that it is not only lending rates and spreads that are prohibitively high, but so also are other financial charges and fees, including those levied on loans, use of credit cards, use of ATMs and foreign exchange transactions.
“In other jurisdictions, charges for financial services as well as other services and goods that are used on a universal or mass scale—including water, electricity, public transport and postal services—are regulated, since leaving them to the dictates of the market could lead to exploitation of the large numbers of consumers by providers bent on making abnormal profits”, it explained.
Capping interest rates does not amount to regulating lending rates
The IEA, therefore, called on the BoG to regulate prices of other financial services as well, adding, the “IEA also wishes to reemphasise that capping the spread between the lending rate and the policy rate, and regulating other financial charges, do not amount to introducing a “control policy” in the financial industry, as some people would want to suggest.”
It rather added that the Central Bank will only be exercising its regulatory mandate as most central banks do.
“Regulating lending rates and prices of financial services is key as it will ease the burden on consumers of financial services, while also easing the cost of investment as a vehicle for catalysing the growth of the economy. The BoG, indeed, has a national duty to attend to the incessant calls by governments, businesses and CSOs to address what is obviously one of the most important hindrances to the progress of the Ghanaian economy.”
The IEA concluded that continuous postponement of this action should not be an option.
MPC holds 102nd meetinghttps://fe3de6a688d77dad59bb6ae14d5033ad.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
“The Monetary Policy Committee (MPC) is presently holding its 102nd meeting which will end tomorrow September 25th.
The meeting will end with a decision on the Policy Rate, currently pegged at 13.5%.
The meeting is being held at a time of heightened concern about the persistence of high lending rates in the country. This concern was given further focus recently by President Akufo-Addo when he inaugurated the new Board of Bank of Ghana on August 20, 2021, noting the negative effect of high lending rates on the economy.
The President called out the board to address the problem as a matter of urgency.