Banks anticipate drop in policy rate by a further 100 basis points

As new Governor of Ghana’s Central Bank, Dr Ernest Addison chairs his first Monetary Policy Committee (MPC) meeting tomorrow,

most banks are expecting a further decline in the Bank’s benchmark interest rate, now at 23.5 per cent.

The Committee will be reviewing developments in the Ghanaian economy and later announce its decision on the appropriate positioning of the Bank’s policy rate.

Financial intermediaries have already repositioned their businesses to do more lending due to the sharp drop in Treasury-Bill rates.

They are now easing their credit stance despite the relative high non-performing loans asset ratio.

As inflation eases, a further drop in the rate is set to spur lending and economic activity.

Checks by Business Finder indicate that banks such as Barclays Bank, Stanchart, UBA and GCB, have all reduced their lending rates.

An experienced banker heading one of the top tier banks told this paper that he expects the policy rate to come down by a further 100 basis points.

Government borrowing has dropped and the fiscal space has improved, interest rates are coming down and we therefore expect some decline in BoG Policy rate.”

Investment firm, InvestCorp has already projected a 17.5 percent policy rate by December 2017.

“The decision by the rate setting committee of the BoG to reduce the country’s MPR by 200 basis points to 23.5 percent should set-in a policy easing cycle for the Ghanaian economy,” the firm said.

“In our view this decision should support the prevailing positive consumer and business sentiment, support the tax reliefs and the strong growth recovery signal in the 2017 budget statement and help re-align the MPR to inflation expectations.”

Treasury bill rates traded at 13.47 per cent for the 91-day and 15.3 percent for the 182-day.

The one-year note however sold at 16 per cent, signaling a rapid decline in government borrowing on the treasury market. The 91-day and 182-day Treasury bills sold for 14.21 and 15.91 percent interest respectively last week.

Inflation inched up marginally to 13 percent last week but many analysts say this will not alter the decision of the MPC which is expected to loosen slightly the policy rate.

This is because the exchange rate market has been relative stable with the cedi still gaining grounds against the US dollar, appreciating by 0.81 percent against the American currency.

At the last MPC meeting, the Governor of the Bank said underlying inflation pressures had eased considerably and inflation was projected to trend down towards the medium term target.

The Bank noted that growth was likely to remain significantly below potential, which alongside an improved inflation outlook provides some scope for monetary policy easing.