Bank Of Ghana Must Scrap The Policy Rate

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The local currency, started making gains against most of its major trading currencies this week, because of the Bank of Ghana’s announcement that, it was going to be releasing 20 million dollars daily, until the cedi regains it lost glory.

It is trite knowledge, the effect the decline was having on the economy, it has led to rising cost of doing business, which in turn, led to increases in the prices of goods and services.

Whiles, we commend the Central Bank for employing a prudent measure this time around to arrest the decline, we will like to bring to it attention, something we feel if adopted, could help stimulate the local economy.

Most Ghanaians, instead of going into production, would rather engage in the traditional business of buying and selling, and this is done through importation. The reason is that, the cost of borrowing in Ghana is too high.

In well developed and advance countries, where you might say have surpassed secondary production and are into tertiary production, the cost of borrowing and by extension cost of doing business is low.

In the United States of America (USA), one can get a loan for as low as between one to five percent interest rate.

A country like Ghana, which has a smaller economy, interest rates hovers around 25 to 30 percent. This is a disincentive for many business start-ups and is also crippling existing businesses, which are not able to expand, because interest rates, swallow their profits.

Nigeria, has taken a bold step by lowering interest rates, it is no wonder the country is producing many African giants, capable of competing anywhere in the world.

We will like to recommend to Bank of Ghana, to as a matter of urgency scrap its prime rate or policy rate, which currently stands at 13.50 percent.

The Policy rate, essentially gives an indication of the direction of the general interest rates charged on loans by banks.

If this is done, the Commercial Banks, will be open for competition and this will automatically push the interest rate down.

The Bank of Ghana, can then effectively play it supervisory role, by ensuring that Banks give loans within a certain threshold.

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