The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has retained its policy rate at 16%.
The decision to keep the lending rate to commercial banks unchanged from the previous rate was taken after the committee “observed that there are risks to the outlook, which would have to be monitored very closely”.
Announcing the decision, the Governor of the BoG, Dr Ernest Addison said at a press conference on Monday, 1 April 2019 that: “Overcoming these risks would require vigilance and time-consistent policy actions”.
He pointed out that the “monetary policy has remained broadly accommodative in advanced economies. Concerns about weakening growth in the United States, and partially muted inflation pressures, have led to a revision to the Fed’s monetary policy forward guidance, signalling a pause in further interest rate hikes. As slower growth concerns mount, other central banks have held back on further tightening of their monetary policy stance. These developments may moderate the impact of the earlier tightening of financing conditions on emerging and frontier markets, especially in those with relatively strong macro fundamentals”.
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Dr Addison said growth remains relatively strong and the negative output gap seems to be closing, although at a relatively modest pace.
“Overall GDP growth for 2018 is projected at 5.6 per cent, while non-oil GDP is projected to expand at 5.8 per cent. With an average growth of 6.1% for the first three quarters of 2018, the broad expectation is that the annual target of 5.6% will be realised. For 2019, GDP growth is projected at 7.6%”.
What 16% Policy rate means to your pocket
The Borrower
To the borrower, who is seeking to raise some funding through credit, maintaining the policy rate, to a large extent implies that Bank lending rates will remain unchanged, hence no increase in cost of borrowing.
However, there are a other factors that may trigger an increase in bank lending rates irrespective of policy rate unchanged; the continuing rise of cost of doing business and the dollarization of the economy. Borrowers (individuals or businesses) should also be aware they may incur other costs like loan monitoring fee, processing fee and cash locked up as collateral, which could still make cost of borrowing quite significant. It is expected that loan monitoring fee could shoot up because there is more pressure on banks now to maintain asset quality and monitoring is one way to achieve that. So lending rates may be unchanged but beware of the other charges that may make general cost of borrowing increase. A borrower can however negotiate on interest rate and other loan charges.
Individual Investors
For the individual investor who may be seeking high yielding interest-bearing instrument, it is definitely not welcome news because of the downward trend in returns on investments.
With the fixed income investment slowed down, it is likely the equity sector would begin to pick up as activity would shift there. Therefore mutual funds skewed towards equity may give good yields if fund managers are picking good stocks.
Maintaining the Policy rate also implies that banks would may keep the fixed deposit and savings rates unchanged.
Institutional Investors
With policy rate remaining unchanged, value in current bonds is not expected to change, hence not a good time to off load on secondary market. Institutional investors should turn attention to the stock exchange, both the primary stock market and the alternative market (GAX). With the pension funds now floating around, it is expected that investment companies would begin to launch more mutual funds. Private equity firms are also likely to show up soon. A portfolio with the structure of a typical pension fund may not lose much, even in the likely event of rate reduction in the future as they make use of professionals to invest and so they can find other alternatives to invest.
