The Ghana National Chamber of Commerce and Industry (GNCCI) is advocating for a reduction in the policy rate by the Bank of Ghana to bolster business growth amidst rising borrowing costs.
It proposed that the Bank of Ghana lower the existing policy rate, citing the relative stability in the forex market and a 30.4% decline in domestic inflation from 53.6% in January 2023 to 23.2%.
According to the Chamber, a reduced policy rate would prompt commercial banks to lower their lending rates, facilitating businesses’ access to funds for expansion in the short to medium term.
Given Ghana’s interest rate being the highest in Africa, the chamber recommended a reduction of not less than 2 percent or 200 basis points in the policy rate.
The call comes as the Monetary Policy Committee (MPC) is in session to evaluate economic developments, with an announcement on the policy rate expected by January 29, 2024.
In a release issued by the Chamber, it said the mounting challenges faced by Ghanaian businesses were due to elevated borrowing costs, primarily driven by the high Monetary Policy rate.
It added that the adverse impact of the 32.0% average interest on commercial loans in 2023, coupled with high utility tariffs and excessive taxes, was creating an exorbitantly expensive business environment in Ghana.
The GNCCI underscored the repercussions of this costly business environment, citing a substantial decline in production, business closures, increased non-performing loans, business relocations to other African countries, and an overall significant downturn in the private sector and economic growth. Notably, Ghana’s Gross Domestic Product (GDP) growth rate plummeted from 6.1% in the 4th quarter of 2021 to 2.0% in the 3rd quarter of 2023.
“As Ghanaian businesses endeavor to actively engage in the AfCFTA, the cost of borrowing will play a crucial role in defining their competitiveness. With Ghana’s interest rate being the highest in Africa, we urge the Monetary Policy Committee to lower the policy rate.
In the chamber’s estimation, anchored on the stability in the forex market, decline in inflation and the projected GDP growth rate of 2.7%, we propose a reduction of not less than two percent or 200 basis points in the policy rate for the start,” the release added.