BoG Reviews Interest Rates

From Monday, February 15, 2010, the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) would review interest rates downwards.

This would come as a good omen to businesses, especially those operating in the manufacturing sector.

During a recent survey by the Association of Ghana Industry (AGI), industry players attributed their predicament to high interest rates, which hovers around 33 percent.

To be led by the Governor of BoG, Paa Kwesi Amissah Arthur, the MPC would adjust the Prime Rate-the rate at which the Central Bank lends to universal banks, downwards because inflation, which is the main determinant of interest rates, has dropped from 20.50 percent in July 2009 to 15.97 percent in December 2009.

However, it is unclear whether the interest rates would go down significantly, but analysts predict that the benchmark indicator of the BoG would be reduced by 100 or 150 basis points.

Reeves Abrokwah, Head of Treasury at Sahel Shara Bank Ghana, revealed that it would be reduced by a maximum 100 basis points or one percentage point.

He told CITY & BUSINESS GUIDE that treasury bills, which determine the Prime Rate, have dropped since the last quarter of 2009 from 25 percent to 19 percent.

Festus Coffie, Head of Research and Strategy at Amal Bank, also shared similar sentiments, pointing out that the Prime Rate would come down by one percentage point from 18 percent to 17 percent.  

Market watchers have urged the bank to address the huge difference between deposit interest rates and lending rates, which are so wide that anytime interest rates goes up, the banks tend to benefit.

Deposit rates and lending rates hover around 8 percent and 33 percent respectively on the average.

Also, the MPC would evaluate the health of the economy for the last three months and make projections for the next quarter of the year.

The BoG has been able to maintain a stable cedi against the major foreign currencies for the last two months.

The MPC is expected to adopt a new foreign exchange policy to support a steady appreciation of the country’s currency in the medium to long-term.

Some economic indicators, including the fiscal and trade deficits, foreign reserves and other important indicators would also be reviewed by the MPC.

It would also assess the business risk factors and announce the evaluation of the economy and other new developments in a press conference on Friday, February 19 2010.

Additionally, the committee is expected to suggest appropriate policies.

By Charles Nixon Yeboah