Source: Graphic online |  18 March 2020

The Bank of Ghana has reduced its benchmark policy rate by 150 basis points as its first response to the strain that the Coronavirus disease (COVID-19) is imposing on the economy.

The policy rate determines the rate at which commercial banks determine interest rates on loans.

With this cut, it is expected that interest rates on commercial loans will also drop.

The bank reduced the rate, which is the benchmark for inter bank lending, from 16 per cent to 14 per cent Wednesday [March 18, 2020].

The Governor of BoG and Chairman of the bank’s Monetary Policy Committee, Dr Ernest Addison, announced this in a statement issued Wednesday [March 18, 2020].

The statement followed the conclusion of the 93rd MPC meeting which reviewed activities in the economy and the impact of global developments on the local front.

Unlike before when the committee’s meetings were followed by press conferences, the bank issued a statement in compliance with the directive to avoid social gatherings in the wake of the COVID-19 scourge.

The reduction in the rate is the first since November 2018 and is expected to combine with other factors to make cost of credit cheaper.

The BoG policy weight carries about 40 per cent weight in the computation of the Ghana Reference Rate, the base rate for banks lending.

Coming at a time when the central bank feared that the COVID-19 could collapse 2020 growth to five per cent or 2.5 per cent in the worst case scenario, the reduction in the rate could make funds cheaper for businesses to access and use to revitalize their operations.

It could also make funds available to consumers, thereby raising consumer purchases for growth to rebound.