The Bank of Ghana Governor, Dr. Johnson Asiama, has urged commercial banks to exercise caution and transparency when adjusting their lending rates following the recent increase in the policy rate.
Speaking at a meeting with the heads of various commercial banks after the Monetary Policy Committee (MPC) meeting, Dr. Asiama emphasized the importance of clear communication with clients during this adjustment process. This engagement marked the first official meeting between the new management of the central bank and the commercial banks at the Bank Square, the headquarters of the Bank of Ghana.
The meeting was attended by chief executives and representatives of regulated banks in Ghana, along with officials from the Bank of Ghana, including 1st Deputy Governor Dr. Zakari Mumuni.
Background
The Monetary Policy Committee of the Bank of Ghana recently raised the policy rate by 100 basis points to 28%, marking the first review of the key lending rate since September 2024. The decision follows a detailed review of economic developments and is intended to reinforce the disinflation process, which, although underway, remains too gradual to secure lasting stability.
Justification
Dr. Asiama explained that the hike was necessary to address ongoing inflation concerns. “The decline in headline inflation from 23.8% in December to 22.4% in March confirms that recent policy actions are having the intended effect,” he observed. However, he pointed out that inflation expectations remain high, and core inflation is still above the medium-term target.
The Governor stated that the MPC adopted a proactive stance, recognizing that delayed tightening could result in more persistent inflation and higher costs in the long run.
Post-Policy Rate Hike Concerns
While acknowledging the impact of the policy rate hike on borrowing costs for businesses and households, Dr. Asiama reassured that viable businesses would continue to receive support. He emphasized that tailored solutions would be provided to mitigate the effects on vulnerable sectors.
Outlook and Challenges
Despite the challenges, Dr. Asiama noted that the banking sector has shown sustained improvement, with stronger solvency and asset quality measures, as well as strong liquidity and profitability. However, he acknowledged ongoing solvency concerns, particularly with domestically controlled and state-owned banks, where capitalization efforts remain unclear.
Addressing these capital shortfalls remains a priority for the Bank of Ghana, with the Governor revealing that efforts are underway to work closely with affected institutions to ensure sustainable capital levels, restore depositor confidence, and comply with regulatory requirements.
Dr. Asiama also advised commercial banks to draw lessons from past banking crises and prepare for future challenges with a focus on improving crisis management preparedness.
