By Fred Yaw Sarpong
Both commercial and universal banks in Ghana are expected to adjust their base lending rates as a result of Bank of Ghana (BoG), the regulator of the banking industry increasing its policy rate from 15% to 16%.
The Central bank’s policy rate serves as the benchmark for the commercial/universal banks in the country in setting their individual base lending rates.
Mostly, the possibility for commercial/universal and other financial institutions to increase their base lending rates is high whenever the central bank increases it lending rate.
The policy rate is the rate at which the central bank lends to commercial/universal banks and serves as a basis for the banks in setting their base lending rates, especially to their respective customers.
Announcing the new policy rate in Accra, which is a 100 basis points higher than the previous rate of 15%, the Governor of BoG and Chairman of the Monetary Policy Committee (MPC), Dr. Henry Kofi Wampah said on balance, the committee held the view that risks to the inflation outlook were elevated and outweighed the risks to growth and therefore decided to increase the policy rate from 15% to 16%.
In addition to the increase in the policy rate, the Governor stated that the bank has recently introduced changes to its monetary operations by realigning the policy corridor by widening the band.
‘The reverse repo rate is now 200 basis points above the policy rate while the repo rate is at 100 basis points below it. Changing its mode of presence in the interbank market by introducing an “informal standing facility” to operationalize its policy decisions and enhance the transmission mechanism. This process will be formalized shortly,’ said Dr. Wampah.
According to him these changes have steered the interbank rate within the policy corridor. ‘It is expected that as government restructures its debt and consolidates its fiscal operations, the Treasury bill rates will also fall within the corridor,’ he added.
He explained that the policy measures introduced by the Bank in May 2012 with regards to cash reserve requirements, Net Open Position limits, and Vostro balances will continue to be in place.
‘The Base Rate formula will be implemented by all banks with effect from 2nd July, 2013 to ensure transparency in the pricing of credit in the banking system. The Bank will continue to monitor developments and take appropriate measures to ensure that the price stability objective is attained,’ he announced.
Meanwhile some financial experts in the country have agreed with the central bank in adjusting the policy rate, especially at a time when inflation is currently around 10.6%. The experts believe that the banking sector regulator needed to signal the market, through a rise in the policy rate, its preparedness to stabilize the rate from climbing further.