| General News
[ 2016-03-31 ]
Interest rates to rise further THE cost of borrowing for businesses in Ghana is
unlikely to decline any time soon as research and
investment firm
, InvestCorp is projecting a further hike in the
central bank’s policy rate to 27.50 per cent by
the end of this year.
The policy rate is the rate at which commercial
banks borrow from the Bank of Ghana (BoG).
This indicates that treasury yields will start
going up once again due to the strict adherence to
the fiscal consolidation programme by the
government.
Interest rates on the money market are hovering
between 22 and 24.5 percent but many economists
and market watchers are worried because of the
disconnection with the policy rate of 26 percent
and the interbank interest rate of 25.41 percent.
The IMF through its three-year Extended Credit
Facility programme with Ghana has constantly
directed government to remain fiscally disciplined
in order to curb inflation and achieve exchange
rate stability.
In its reaction to the latest maintenance of the
policy rate at 26 percent by the central bank last
week, InvestCorp said monetary policy tightening
might do more harm than good to the economy,
especially if it is combined with the current
revenue-based fiscal consolidation strategy.
It pointed out that “monetary policy must be
aligned to a faster GDP growth recovery. This
approach will not only help businesses and improve
consumer demand, but will also ease pressure on
the banking sector’s balance sheets and
non-performing loans.”
“The decision to maintain the Monetary Policy
Rate (MPR) at 26 percent despite the recent
inflation pressures provides some flexibility for
interest rate reduction in the near future – and
we believe that this would be an appropriate
response to support a faster growth recovery,”
it added.
However, InvestCorp said to make the lower MPR
effective, it is expected that its reduction must
be accompanied by a simultaneous decline in
treasury yields adding, while this may be
difficult due to the country’s fiscal
consolidation strategy being revenue-led, it can
be pushed within the context of an independent
central bank – and a realisation that both
monetary and fiscal policy must work more
effectively in restoring faster economic growth.
The Bank of Ghana has maintained a tight policy
stance since February 2012, with the country’s
MPR increasing from 12.5 percent to 26 percent
over the past 4 years.
“We see the current sources of inflation for
Ghana being induced by structural factors
including administrative price adjustments and
fuel levies. In our view, this is not a monetary
phenomenon and tightening monetary policy is not
required to bring inflation down,” the
investment firm explained.
It noted that the country must allow the pass
through effects of this administered and
policy-induced price increases on inflation to
filter through the economy.
The Monetary Policy Committee of the Bank of Ghana
recently said the risks to inflation and growth
outlook was balanced, hence the need to maintain
the current monetary policy stance which together
with fiscal consolidation would help bring
inflation further down.
It however said it will continue to monitor
developments in the economy and take further
actions, if necessary, to ensure the attainment of
its target within the forecast horizon.
Source - The Finder
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