The private sector begins to put pressure on interest rates

Business news for Wednesday, September 9, 2020

Source: goldstreetbusiness.com

2020-09-09

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The announcement of the dates of the 96th ordinary meeting of the Bank of Ghana’s Monetary Policy Committee has sparked a lobbying by private sector bosses with the aim of preventing a possible rise in the benchmark Monetary Policy Rate. The MPC will meet from Tuesday, September 22 to Friday, September 25 and will be followed by the announcement of the MPR for the next two months on Monday, September 28.

The concern of the private sector is that the BoG, in line with its inflation targeting framework for monetary policy, may increase the MPR in response to the increase in consumer price inflation that, in July, reached 11.4 percent, its highest level since the Ghana Statistical Service stressed. his calculations to determine inflation in the middle of last year. In fact, in its latest inflation forecast, released in August, the central bank predicted that inflation will likely remain above the upper limit of the target of 6 to 10 percent through the second quarter of 2021. The report he went on to suggest that this might require an increase in the MPR.

The central bank has adopted a policy of monetary easing since the arrival of the COVID 19 pandemic in Ghana in late March this year, in an effort to stem the inevitable sharp economic contraction resulting from the impact of the viral outbreak and the response of the Public politics.

Consequently, the BoG cut the MPR by 150 basis points, from the old 16.0 percent to 14.5 percent. While the direction of the change was expected, the size of the cut took many analysts by surprise, many of them expecting a cut of no more than 100 basis points. This was followed by a series of new measures aimed at encouraging commercial lenders to maintain their financial support for clients, most of them severely affected by the economic impact of the pandemic. At the same time, the government itself negotiated a 200 basis point reduction in interest rates on new and existing bank loans, with the Ghana Bankers Association, during this period of coronavirus distress.

However, unsurprisingly, credit to the private sector has declined significantly with neither lenders nor borrowers feeling comfortable with the economic uncertainty imposed by COVID 19. The only consolation for credit-driven businesses in Ghana has been been the reduction of loan rates and now companies fear that this can be taken. away from them via an MPR hike later this month.

The overshooting of consumer price inflation estimates in 2019 caused year-over-year inflation to drop sharply from nearly 10 percent to 7.8 percent in August last year, a level from which it only deviated marginally to the arrival of COVID 19 in Ghana at the end of March this year. However, in April it had exceeded the upper limit of the 10 percent target band, reaching 10.6 percent.

It has risen further since then, hitting 11.3 percent in May before falling to 11.2 percent in June, but then hit a new high of 11.4 percent in July, sparking fears among bosses. of central banks.

However, private sector leaders note that the current rise in inflation has been due in large part to food inflation, which reached 13.7 percent in July, compared to non-food inflation of 9.7 percent in that month, largely the result of supply chain disruptions and the buildup of food panics resulting from the COVID 19 outbreak. Therefore, the current annual harvest can be expected to reverse the upward trend again . This means that the year-on-year inflation figures for August, which the GSS is expected to release next week, will provide crucial information for the impending decision of the MPC.

They also note that the economy urgently needs a stimulus through continued monetary easing. In fact, the BoG’s most recent Composite Index of Economic Activity, dated May, showed a record contraction of 10.6 percent year-on-year, suggesting a similar (but not identical) trend in the contraction of the Gross Domestic Product according to the measurement of the GSS. Although the easing of socioeconomic restrictions to curb COVID 19 and a relative return to normalcy should have reversed that contraction by now, it has left the economy with much ground to regain.