Policy rate cut not interest rate panacea: PEF

The Chief Executive Officer of the Private Enterprise Federation (PEF), Nana Osei Bonsu, has indicated that the recent policy rate cut may not necessarily translate into a reduction in interest rates by commercial banks.

Nana Osei Bonsu applauded the Bank of Ghana (BoG) for the cut, but explained that commercial banks use a formula, considering several factors, to calculate the rate at which they lend to the public. However, the policy rate is only one factor whose weight may not be too significant to result in a reduction of lending rates.

“So if you reduce only one of the parameters, it does not necessarily result in corresponding reduction in the rates the banks are charging,” he told Moro Awudu on Class91.3FM’s Executive Breakfast Show on Tuesday, March 28.

The Monetary Policy Committee (MPC) of BoG dropped the policy rate by 200 basis points to 23.5 per cent.

Speaking at a news conference, Governor of the Central Bank, Dr Abdul Nashiru Issahaku, cited favourable economic outlook for the reduction.

He included factors like declining inflation rate and a stabilising cedi as the reason for this development, adding he was hopeful it would help boost lending and stimulate growth.

But Nana Osei Bonsu wants the BoG to target the other significant components of the formula used by the banks so that a reduction in those parameters will result in significant reduction of the lending rates to the private sector.

“So, what we want to see is the importance of the import of policy rate on rates charged by institutions to private sector borrowers,” he entreated.