Pressure mounts on BoG to reduce policy rate — Chamber of Commerce latest to push

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Pressure is mounting on the Monetary Policy Committee of the Bank of Ghana (BoG) to reduce the policy rate to enable a positive effect on the cost of borrowing in the country.

As part of its mandate, the committee, otherwise known as MPC, has been using the policy rate as a key tool for checking inflation.

 The rate currently stands at 30 percent with a corresponding impact on interest rates which hovers at an average of 32 percent, a development that is stifling businesses because of their inability to borrow at such an exorbitant rate.

Many experts have questioned the motive behind the increase in the policy rate to that level when businesses are reeling under severe pressure for their inability to borrow to expand their operations.

Businesses state case

The latest to push for a reduction in the policy rate is the Ghana National Chamber of Commerce and Industry (GNCCI), whose release said: “As the Monetary Policy Committee (MPC) meets to review the policy rate, the  GNCCI calls for a reduction to support business expansion.

“While acknowledging the intent for the harsh policy rate hikes from 14.5 percent in January 2022 to the current rate of 30 percent as a measure to mitigate the inflationary pressures on the economy from increased government spending, oil price hikes, and increased supply chain bottlenecks due to geopolitical tensions, the GNCCI re-emphasizes its concerns about the adverse impact of high-interest rates on business growth.”

The chamber said Ghanaian businesses were facing a considerable increase in borrowing costs largely stemming from the high monetary policy rate, adding that “The high interest on commercial loans averaging 32 percent in 2023 adds up to the already high utility tariffs and excessive taxes, making the cost of doing business in Ghana extremely high.”

The chamber further argued that the costly business environment had contributed to a significant decline in production, the collapse of many businesses, the rise in non-performing loans, the relocation of businesses to other African countries, and, as a whole, led to the significant decline in the growth of the private sector and the economy.

It found it worrying that from a GDP growth rate of 6.1 percent in the 4th quarter of 2021, it dropped significantly to 2.0 percent in the 3rd quarter of 2023.

“As the representative body of the business community in the country, the GNCCI is very mindful of issues that specifically impact the operational costs of businesses,” it said.

It said with the 116th MPC meeting ongoing to discuss the policy rate adjustments, the GNCCI emphasized the need for any modifications to favor the growth of businesses.

“The GNCCI urges the MPC to take into account the cost-push impact of a high policy rate.

Factors to consider

Given the relative stability in the forex market and the significant decline of 30.4 percent in domestic inflation from 53.6 percent in January 2023 to 23.2 percent as at the end of December last year, which also implies that the Real Interest Rate in Ghana is now positive, we propose that the Bank of Ghana lowers the existing policy rate.

We believe the reduction will induce commercial banks to also lower their lending rate to enable businesses to access funds for expansion in the short to medium term.” The chamber added.

As Ghanaian businesses endeavor to actively engage in the African Continental Free Trade Area ( 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 MPC 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 percent, we propose a reduction of not less than two percent or 200 basis points in the policy rate for the start,” the chamber said.

It said the GNCCI would continue to engage stakeholders in the public and private sectors to ensure a thriving business environment that delivered shared growth and prosperity for all.

The verdict, as far as the decision of the MPC is concerned, is expected later today.

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