Bank of Ghana maintains policy rate at 16 percent, here’s how this can reflect in your pocket

Ghana’s central bank, the Bank of Ghana (BoG) has maintained its policy rate at 16 percent for the second time running.

The Governor of the Bank of Ghana (BoG), Dr Ernest Addison

The Governor of the BoG, Ernest Addison told reporters Monday, May 27, 2019, at the Monetary Policy Committee’s (MPC) press briefing held in Accra.

According to him, the MPC’s decision became necessary to sustain the gains the committee had made over the past two or more years.

He mentioned that the exchange rate performance since the beginning of the year put pressure on the prices of goods and services and the BoG’s decision was to keep its rate unchanged to ensure that inflation does not inch up further.

On the inflation outlook, the Governor noted that “the recent exchange rate pass-through has slowed the disinflation process, leading to a slightly elevated inflation profile as shown in the latest forecasts. However, core inflation remains subdued and inflation expectations fairly anchored,” adding that, “Under the circumstances, the Committee decided to keep the monetary policy rate unchanged at 16 percent. The Committee will continue to closely monitor both global and domestic developments and stands ready to take appropriate measures if necessary, to maintain price stability.”

Here's how this can reflect in your pocket

The Borrower

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 the cost of borrowing.

However, there are other factors that may trigger an increase in bank lending rates irrespective of the policy rate being unchanged.

Borrowers (individuals or businesses) should also be aware that they may incur other costs like loan monitoring fee, processing fee and cash locked up as collateral, which could still make the 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. 

A borrower can, however, negotiate on the interest rate and other loan charges.

Individual Investors

For the individual investor who may be seeking a 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 tilted towards equity may give good yields if fund managers are picking good stocks.

Maintaining the Policy rate also implies that banks may keep the fixed deposit and savings rates unchanged.

Institutional Investors

With policy rate remaining unchanged, the value in current bonds is not expected to change, hence not a good time to offload on the secondary market.

Institutional investors should turn attention to the stock exchange, both the primary stock market and the alternative market.

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.

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