Economist Professor Patrick Asuming says despite the Bank of Ghana’s aggressive policy rate cut of 300 basis points to 25 percent at its July Monetary Policy Committee (MPC) meeting, banks are unlikely to respond with significant reductions in lending rates.
According to him, high levels of non-performing loans (NPLs) and persistent risk aversion across the banking sector will likely limit the transmission of the rate cut to borrowers.
His comments follow the central bank’s bold move — the largest rate cut in recent years — aimed at supporting economic recovery on the back of improved macroeconomic conditions and a sustained disinflationary trend.
Speaking to Citi Business News, Professor Patrick Asuming projected the Ghana Reference rate could fall by about 120 basis points in response to the monetary easing however, stressing that the broader credit environment will depend on how banks assess risk.
“Everytime you see 100 basis point cut in the policy rate, directly you should see 40 basis point cut or reduction in the Ghana reference rate. So with 300 basis point we should see about 120 basis point reduction in the Ghana reference rate.
“Don’t forget that there is also an indirect impact of the policy rate through the interbank market. Usually you will see some reduction in the interbank market which will provide additional feedback effect on the Ghana reference rate.
“But whether this will lead to substantial cut in the lending rate is unclear. Don’t forget that non-performing loans are still very high and I am sure the banks will be more cautious. Maybe for more credit worthy customers there might be some substantial cut in their lending rate,” he said.
The Bank of Ghana’s rate cut, one of the steepest in recent years, comes amid efforts to support economic recovery while maintaining financial stability.
Governor of the Bank of Ghana, Dr. Johnson Asiama says despite the policy rate cut, there are still underlying risks which the Central Bank will be monitoring keenly and make further policy adjustments as needed to safeguard price stability and support sustained economic growth.
