The reduction in the short term security which is one of the benchmarks in determining lending rates indicates a further drop in the BoG’s policy rate in the coming months.
Already, inflation had drop to 12.8 percent in March 2017, a situation the Central Bank describes as significant in its quest to achieve its target of 8+/- 2 for 2017.
The 182-day T bill however is being offered at 16.37 by the Bank of Ghana to investors.
The government has already began the process to profile all debts to reduce the pressure of paying higher interest rates. Debt re-profiling is a form of financial restructuring where more expensive debts are replaced with less expensive ones. In some cases, short-term debts are replaced with long-term ones, ostensibly to reduce the public debt stock.
Cost of borrowing has also been declining as most banks have adjusted their base rates downwards.
Additionally, the banks have been disbursing more loans compared to 2016.
Money supply has also been loosened slightly, making more funds available for the banks to lend instead of investments in short term securities.
The BoG slashed its base lending rate-the policy rate by 200 basis points to 23.5 percent, the biggest cut since December 2006. It attributed the decision largely to lower inflation. The cedi has also seen some remarkable appreciation against the US dollar in the last week to trade around GHc4.18 on the interbank market.
According to the February 2017 APR, the industry average base rate as at March 31, 2017, was 26.7 percent, a drop of 0.2 percent from the 26.9 percent recorded for the month of February 2017. However, average lending rate was 33.0 percent.
Investment firm, InvestCorp has predicated the Monetary Policy Rate-the rate at which the Bank of Ghana lends to commercial Bank is expected to end the year at 17.50 percent.
InvestCorp said “The decision by the rate setting committee of the Bank of Ghana to reduce the country’s Monetary Policy Rate (MPR) by 200 basis points to 23.5 percent should set-in a policy easing cycle for the Ghanaian economy. This rate cut occurred after the authorities kept the MPR steady since November 2016, and CPI inflation declined from a recent peak of 19.2 percent (March 2016) to 13.2 percent in February 2017.”
It added that “in our view this decision should support the prevailing positive consumer and business sentiment, support the tax reliefs and the strong growth recovery signal in the 2017 budget statement and help re-align the MPR to inflation expectations.”
Though non-performing loans are still high in the banking industry, it has seen some decline according to first quarter unaudited accounts by the banks.