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The Chief Executive Officer of the Association of Ghana Industries (AGI), Mr. Seth Twum-Akwaboah, has emphasized that a significant reduction in the prices of goods and services will only materialize if lending rates are lowered to reflect recent policy rate cuts.
Speaking on the impact of monetary policy on business operations, Mr. Twum-Akwaboah explained that while the Bank of Ghana’s decision to reduce the policy rate is a positive signal, it does not automatically translate into lower lending rates for businesses.
According to him, the gap between policy adjustments and actual lending rates must be addressed for the intended economic benefits to be realized.
“First of all let’s appreciate that a drop in policy rates does not necessarily mean a drop in lending rates because we’ve had this in the past where there will be some significant drop in policy rate but then lending rates sometimes remain the same.
“Once the policy rate has dropped we should see a corresponding drop or significant drop in the lending rate as well, so if we’re going to have that improvement that reduction in the lending rates then definitely it’s going to impact positively on businesses.” He said.
Mr. Twum-Akwaboah stressed that the cost of borrowing directly influences the cost of doing business. He noted that if businesses experience lower financing costs, they would be better positioned to reduce the prices of goods, thus passing the benefit on to consumers.
Citing recent improvements in the Ghanaian economy, including the appreciation of the cedi and falling inflation rates, Mr. Twum-Akwaboah acknowledged that some price reductions have already been observed in the market over the past few months. However, he explained that certain products remain unaffected due to their limited exposure to foreign exchange and borrowing costs.
“Cost of capital adds to the cost of doing business and therefore if some cost elements of your cost structure is going down, your price must come down. When we said we’re going to see reduction in prices as a result of the gain the cedi has made, and then we said, it’s not going to happen immediately, but give us some time. Indeed, over the past four months or so, we’ve all seen the improvement that has happened and inflation is dropping. When we go to market, prices of goods have come down.
“Except those that are not really exposed to the exchange rate situation and therefore it doesn’t have much effect on their pricing and they have probably maintained it. In the same way, if we see significant drop in lending rates because it’s a part of the cost structure of a business, when your cost is coming down, you must also enjoy a transfer part of the gain to your consumers in the form of lowering prices. Because if you don’t do that, others will do it and compete you out of the market.”
He also cautioned that not all businesses will be impacted by lower interest rates, as some operate without significant reliance on bank credit.
“It’s a very competitive market, so if you were borrowing at 25, 30 % and today you get it down to say 20 or less, it means that your cost of production is going down, your cost of doing business is going down, so if you want to be competitive and get your markets, you must reduce your prices. So it’s going to happen but bear in mind that I think you should also appreciate that it’s not every business that is so much exposed to bank credit system.
“So if you are not exposed to bank credit system it has no effect on you. There people who are doing business and the nature of their business, they are not borrowing so much from the banking system and even if cost of credit comes down, it does not mean that assets will be that easy because the banks must have the liquidity to lend in the first place and then you must have businesses that are also having the capacity to absorb whatever loan facility that is given to them. The two must work together before you get assets to credit.” He stated
Source: Elvisanokyenews.net
