Ghana Talks Business TV- New Policy Rate and its Effects On Businesses (TWI)

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Yaw Korankye Antwi, a financial analyst and Editor-in-Chief of business and economic analysis and commentary blog, wwww.ghanatalksbusiness.com analyzes the policy rate reduction by some 200 bps by the Monetary Policy Committee of the Bank of Ghana.

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This is a reduction from the 25.5% it has been for about 4-5 months, the lowest since July 2015. Policy rate remains one of the factors why we pay so much on loans and also contributes to inflation. The policy rate is the rate at which banks borrow from the central bank and forms the basis of all borrowing interest rates with banks. Usually the other side is where rates paid on treasury bills would also hover around the same region except that this time the six months’ treasury bill is 17.18% which is odd. In any case what this means to you and your business is that probably your interest payment on loans would be adjusted down slightly but may take a while as banks take a little bit more time to adjust borrowing downwards that upwards. It is probably so because not all cost of financing comes from cost of funds. General cost of doing business also comes and I can say that businesses are still feeling this especially from the depreciated forex rate. Will you see some impact for your business? Yes, immediately if it is a big business who can negotiate on immediate new loans. For the typical Small business, it would take a while say about three months and also on condition that cedi stands well against the dollar else inflation would erode any savings we can make on cost of finance. Otherwise if you are a small business you would have to hang on some reserves you have until this policy rate reduction and the recent tax amendments translate into real gains. You may also need to hang on a while if you’re going to need some dollars but not immediately you may not need to buy now to hedge, as it looks like it’s going to ease down further in the next few couple of months. If needs are immediate then you have no option than to buy at the going rate. interesting to note that Ghana’s interest rate still remains the highest in Africa with Mozambique, Gambia and the likes. It is likely that the rate will stay the same until may be July when there could be another move most likely down further.

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