The President of the Ghana Chamber of Commerce, Seth Adjei Baah, has said that the recent hike in policy rate by the Bank of Ghana (BoG) will further push up interest rates, which are already considered among the highest on the continent.
The BoG on Monday increased the Monetary Policy rate (MPR) by 100 basis points to 25 percent from 24 percent, reaching a 12-year high.
However, the head of the chamber, in an interview believed that the central banks’ decision will prove costly and debilitating to the business community. “The more they raise it, the banks will also increase their interest rates. When it went to 24 percent we all complained, hoping it would not be increased again. But look at what has happened; it has been increased.
“I think this will cause interest rates to rise to 42 percent, and that will even be for the commercial banks. If you go to the savings and loans who lend to the SMEs, they are taking around 6 percent per month — making it 72 percent per annum. How can businesses make profits if they are to pay such a high interest rate?” he asked.
The hike in the policy rate comes after the International Monetary Fund (IMF) called for tightening of monetary policy to help bring down inflation, which currently stands at 17.3 percent, against the background of exchange rate volatility.
Currently, the average lending rate of banks is 27.9 percent; and businesses are concerned the policy rate hikes, which largely determine interest rate trends, will be inimical to business growth in the country.
According to Mr. Adjei Baah, the central bank is not serving the interest of businesses with its decisions: “The Bank of Ghana keeps telling us that it wants to arrest inflation, and so keeps increasing the policy rate. This is purely theoretical knowledge. If they don’t understand what is on the ground they should seek advice from those who know. Some people are not doing their work well, and they must be changed. They continue to make worse decisions and we keep blaming the government,” he said.
Meanwhile, the year-on-year inflation dipped from 17.9 percent in July to 17.3 percent in August, but the MPC ruled that the figure is still too high if the central bank is to achieve its target of single-digit inflation by end of 2016.
Speaking at a press briefing after the 66th regular MPC meeting Dr. Kofi Wampah, BoG Governor, said: “Current forecasts suggest that attainment of the medium-term inflation target by end of 2016 will require further tightening in the monetary policy stance, or else the target horizon will shift into 2017”.
Since beginning of the year, inflation pressures have persisted due to volatilities in the foreign exchange market — with implications for petroleum pricing and other tradable goods and services. The International Monetary Fund in its September country report said: “The Bank of Ghana should stand ready to tighten monetary policy further if inflationary pressures do not recede as expected.”