“There is no economic theory that has stated that a low inflation rate of 2% for example is better than a high rate of 12, 15 or 20 %”. Ghana is not yet ready for single digit inflation since the structure cannot contain it. A rate of between 12 to 15% is the most ideal for now, noting that over the last 20 years any time there inflation hovered around 15% things tend to be comfortable in the system, but when it went over 20% “things go haywire”. Prof. Aryeetey remarked
The governor of the Bank of Ghana (BoG) Dr. Abdul Nashir Issahaku has described as worrying the country’s current average lending rate which is hovering around 33 percent.
According to the Dr. Issahaku, the central bank was committed to bringing down lending rates by tightening monetary policy.
Speaking to Citi Business News, Dr. Issahaku said the central bank was working hard to bring down inflation rate, to help reduce interest rates.
“It is a worry and that is why we are working around the clock to bring down the rates. We will see the rate coming down if the disinflation process is consolidated and when inflation begins to come down substantially, of course it will pull down interest rate. And that is our mandate to bring down inflation,” he said.
He stated that the central bank had to embark on monetary tightening now to control inflation.
“It’s a bitter pill that we are swallowing now to ensure that stability returns to the economy and once that happens am sure the interest rate will come down,”he stressed.
BoG data on lending rates
Latest macroeconomic and financial data from the BoG showed that the average lending rates in the country reached an all time high of 33 percent as at the end of August 2016 compared to the 27.9 percent recorded in the same period in August 2015.
Most banks are now cutting back on lending to customers due to the rise in Non Performing Loans (NPL).
NPL on the books of these banks is currently at 19.2 percent as at July 2016 compared to year on year which is 13.0 percent at the same period in 2015.
Total loans which were given out by banks in the month of July 2016 was also 17.2 (32.2 billion cedis) percent dropping hugely from the 25.6 percent record in July 2015 (29.1 billion cedis).
High NPL’s, interest rates and significant drop in loans and advances to the public.
Economist unhappy with Policy Rate
Meanwhile an economist, Dr. Eric Osei Assibey has expressed disappointment at the Bank of Ghana’s (BoG’s) decision to maintain the Policy Rate at 26 percent.
Dr. Osei Assibey stated that the decision to maintain the policy rate at 26 percent will continue to affect the cost of borrowing, restricting the ability of businesses to expand.
He was of the view that with the current harsh conditions that businesses go through, the committee could have reduced the rate to help interest rates come down for businesses to expand their operations.