Question

The President of Ghana launched the COVID-19 business alleviation program in collaboration with the National Board for Small scale industries, Trade associations and some banks. Under the programme the government is giving funds without interest to selected financial institutions for onward lending t businesses at a 3% interest. The program is aimed at helping beneficiaries to sustain their businesses during the COVID-19 pandemic.

a) If the government had pegged the interest rate under the program at the monetary policy rate, will this have been a better way of setting the rate? explain the advantages and disadvantages of each scenario

Answer 1

In the case where the government had pegged interest rate under the program at monetary policy rate, it will have a better way in setting the rate as it will tend to adjust interest rate according to the monetary policy rate. The interest rate will be on the trend to increase as monetary policy rate in the economy increases. As a result it will affect the cost for many small businesses who are already got a hit due to the situation of pandemic and it is a major disadvantage.