The central bank’s policy rate could fall below 20 percent in the coming year, the first time since 2014, a forecast by RMB Global Markets Research, a South Africa-based research firm has said.
The forecast would come as good news to businesses that have consistently battled costly credit which has proved detrimental to businesses’ expansion plans as well as led to the collapse of some.
The South African firm in its outlook for the coming year predicts that the central bank will follow through its rate cut which started last month when the rate was cut by 50 basis points, taking it to 25.5 percent.
“Our core view is for rate cuts to continue throughout 2017 and even stretch below 20 percent,” the research firm said. The latest forecast comes after inflation, which has largely been responsible for tight monetary policy, fell to a 28-month low of 15.5 percent in November.
“However, we expect the new government to continue to adhere to the IMF’s tight monetary policy conditions. Cedi stability, a markedly improved energy situation (MCA Energy Compact) and sustained offshore interest following a successful exit of the IMF programme are expected to spur growth and keep prices stable, thus affording the MPC room to reduce rates further to possibly 15 percent in 2018,” the forecast said.
The monetary policy rate is an indicative rate of cost of credit given by commercial banks and a reduction in the rate would translate into similar cuts for interest rates which currently average 33-35 percent.
“We also expect to see the central bank focus on providing access to credit for smaller businesses, which has been a major obstacle to growth in the economy with average lending rates above 30 percent,” the South Africa-based firm said.
Commenting on the forecast, Raziel Obeng-Okon, a Senior Lecturer at the Ghana Institute of Management and Public Administration (GIMPA), said such a development though would translate into reduction in the rates, it would take a while to reflect on the market.
He added that businesses already servicing credit facilities at the time of the rate cut may not benefit from the lower interest, rather, those that that go in for new facilities would benefit.
According to Dr. Eric Osei-Assibey, Senior Economist at the University of Ghana, a rate cut will see all other interest rates go down.
“Treasury bill rates will reduce significantly and while treasury bill rate goes down, it will push lending rate down and that will be good for the economy. It will allow businesses to borrow and expand,” he said.
Source: B&FT
