Force commercial banks to obey Policy Rate – Chamber of Commerce to BoG

To ensure that all commercial banks cut down their lending rates to correspond with the drop in the Bank of Ghana’s policy rate to stem the impact of COVID-19 on businesses, the Ghana National Chamber of Commerce and Industry (GNCCI), is urging the regulator to force the banks, instead of expecting them to react voluntarily.

Chief Executive Officer of the Chamber, Mark Badu-Aboagye told the B&FT that, the move to get banks to reduce their lending rates in these times is crucial to keeping businesses alive.

“There should be a way that the Central Bank can ‘force’ commercial banks to reduce their interest rate to correspond to the reduced policy rate of the Bank of Ghana. The policy rate should determine the rate at which commercial banks determine interest rates on loans but that seems not to be the case for industry and everyone,” he said.

Even as he is asking for the use of a directive, he also believes that the directive or force should be applied as a last resort when moral persuasion fails. “Even though we want the interest rates to go down, we don’t want a situation where the banks will do it in an artificial way so the financial system is faced with another challenge post COVID-19,” Mr. Badu-Aboagye said.

The Monetary Policy Committee of the Bank of Ghana at its last meeting reduced the benchmark policy rate by 150 basis points as a measure to reduce the pressure that the Coronavirus disease (COVID-19) is imposing on the economy.

In a statement, the BoG explained that the dampened global demand could significantly impact Ghana’s crude oil export earnings with major implications for foreign inflows and tax revenues.

There is also a likelihood of export restrictions from advanced economies and other emerging market economies which could create supply chain shortages for Ghanaian businesses, with significant impact on imports of intermediate and capital goods, as well as consumption goods, it said, adding that regulator reduced the policy rate, which is the benchmark for inter-bank lending, from 16 percent to 14.5 percent on Wednesday, March 18, 2020.

Since then, some banks have responded by reducing their interest rate but many others are dragging their steps, a situation the GNCCI has described as unfriendly to industry and unfair to the regulators’ good intentions. “The Chamber urges government and the Bank of Ghana to work with stakeholders to ensure that the measure outlined achieve their intended purposes. More work needs to be done in specific areas,” he added.

To Mr. Badu-Aboagye, the Bank of Ghana must work with banks to ensure that the reduction in the policy rate actually translate into the interest rate paid by businesses. “We all know the strenuous relationship between the policy rate and the interest rate, this is the time for the policy rates effectiveness to be effective in affecting interest rate.”

“COVID-19 is having a huge impact on economic activities as different sectors have been shut down in support of adherence to health and safety measures to curb the spread. The current spread has also complicated supply chains and the drop in equity prices leading to a shortage of some imported goods from countries like the US, China and other European economies,” he said.

The Chamber has currently sent questionnaires to all its members to help to quantify the loss to industry. This will also be used to gauge the mood of industry and some decision that they have taken or will take post COVID-19.