Ghana’s
central bank has been asked to reduce its policy rate to alleviate the high
cost of borrowing which is crowding out the private sector in the country.
According
to the Centre for Economic and Business Research (CEBRE), a Kumasi-based think-tank,
the Bank of Ghana would need to change the policy direction of its inflation
targeting since it does not support business growth.
“If
the interest rates are reduced, producers can borrow more money to produce on
large scale to take advantage of economies of scale and hence reduce their
prices,” said Gordon Newlove Asamoah, Executive Director of CEBRE.
The
monetary policy rate – which measures the rate at which banks lend to the
public – is currently pegged at 26%.
In
a statement, CEBRE observed that the Bank of Ghana is fighting the inflation
from the demand side by restricting money supply into the economy and by
keeping the interest rate high to deter borrowing.
But
in its analysis, CEBRE believes the approach will only make it more difficult
for business to operate and stifle meaningful contribution to the economic
development of the country.
“This
is because they are borrowing at a high interest rate and so they are not able
to borrow enough money to produce more to meet the demand. Furthermore, because
the companies are not producing more they will lay off some of the workers and this
comes with its own negative effects on the economy. All these problems cripple
the businesses, stifle growth and increase unemployment,” it stated.
Mr.
Asamoah says the police rate could be reduced to below 20% to ease the cost of
borrowing.
CEBRE
also proposes that the central bank reduces the Treasury Bill rate and buy back
some of government debts “so that more money could be release into the economy”.
By
Kofi Adu Domfeh
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