IEA urges BoG to enforce monetary policy directives -Commends government’s response to Covid 19
The Institute of Economic Affairs (IEA) has urged the Bank of Ghana (BoG) to ensure that the measures it has rolled out to combat the Covid 19 pandemic do not remain mere paper directives, but strictly enforced and observed by banks and other financial institutions.
At its March sitting, the Monetary Policy Committee of the Bank of Ghana reduced the Policy Rate by 150 basis points from 16.0% to 14.5%.
The central bank also reduced the primary reserve requirement of banks from 10% to 8%, while also directing banks and Specialised Deposit-Taking Institutions to ease repayment of loans that may experience difficulty due to the slowdown in economic activity.
In a press release sighted by Vaultz News, the IEA believes the slashing of the policy rate a necessary step to induce lower lending rates for business and consumer loans.
It also noted that the reduction of the primary reserve would free locked-up liquidity for banks to support the economy and was, therefore, a step in the right direction.
The IEA, however, cautioned the BoG to ensure that these directives inure to the benefit of the economy as a whole and not only remain on paper.
“For instance, we know that banks invariably show inertia in responding to policy rate adjustments, particularly in the downward direction. The BoG also expressed concern about the possibility of banks using the extra liquidity freed up for them to buy Treasury Bills rather than lending it to the private sector.
“Therefore, to make the monetary policy rate cut effective and also ensure that banks lend their freed-up reserves to the private sector, the BoG should, as of necessity, follow up with a strong directive to banks to act accordingly.
“We are even calling on the Bank to set up a multi-stakeholder committee, comprising representatives from the Bank of Ghana, Ministry of Finance, Ghana Bankers Association, Association of Ghana Industries and civil society to enforce the measures,” the institute pointed out.
Commends govt’s response
The IEA in the press release also commended the government for it’s response to the economic impact of Covid 19.
Government has mobilised a GHc1 billion stimulus package to support small businesses who have been affected by the pandemic.
The IEA believes this is an important initiative that will prevent these businesses that constitute the backbone of the economy from going down and taking with them many households and livelihoods.
“Our wish is that the National Board for Small-Scale Industries (NBSSI) will administer the package fairly and judiciously for the maximum benefit of the affected businesses, while also calling on the businesses to use the funds prudently and productively,” it stated.
Read the press release below: