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Finance Expert Urges Caution on Commercial Banks’ Lending Rates Amid Decline in Inflation

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Following the recent decline in Ghana’s inflation rate, the Bank of Ghana has called on commercial banks to reduce their lending rates. However, a finance lecturer at the University of Ghana Business School, Prof. Godfred Bokpin, believes that it may be premature for commercial banks to lower their lending rates in response to the decline in inflation.

According to Bokpin, while it is a good call by the Bank of Ghana, the importance of the Bank of Ghana’s policy rate cannot be overstated. He argues that if the central bank believes that the process of disinflation has become entrenched and will decline sharply, then this should be reflected in the policy and treasury bill rate.

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Bokpin also emphasized the importance of the three reference rates in Ghana: the policy rate, treasury bill rate, and interbank rate. He notes that if the rate at which the Bank of Ghana lends to commercial banks does not decrease significantly to reflect the reduction in inflation, then it does not have the moral right to ask commercial banks to do more than it is willing to do.

For the most part, inflation in Ghana dropped to 41.2 percent for the month of April 2023, representing a 3.8 percentage point decrease from the previous month. The Consumer Price Index (CPI) data released by the Ghana Statistical Service (GSS) on May 10, 2023, also revealed that food inflation stood at 48.7 percent, while non-food inflation was 35.4 percent.

Bokpin’s caution comes amidst calls by some stakeholders for commercial banks to reduce their lending rates to help spur economic growth and development. However, with the uncertainty surrounding the impact of the decline in inflation on the economy and the policy rate of the central bank, it may be premature for commercial banks to make any drastic changes to their lending rates.

In a nutshell, while the decline in inflation is good news for the Ghanaian economy, stakeholders must exercise caution and monitor the situation closely to make informed decisions that will benefit all parties involved.

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