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Interest Rates To Decline Soon - Governor Assures Businesses
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Dr Ernest Addison — Governer of BoG
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The Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has given an assurance that interests of banks will soon realise a significant reduction to enable businesses to get access to cheaper funds to enhance their operations.

Although, we do admit that the interest rate is too high, we are optimistic that as the processes of cleaning up the balance sheet of commercial banks are completed, we will begin to see the lending rates gradually trending down in line with the other rates in the financial market,” he said.

The consistent reduction in policy rate, gradual fall in inflation levels and exchange rates hovering within reasonable limits are good indications of recovery and gradual stability in the macroeconomic environment.

Dr Addison, who disclosed this at the 57th annual general meeting (AGM) of the Association of Ghana Industries (AGI) on November 8 in Accra, said the recent stability in the macroeconomic environment was crucial for planning and long-term business and investment decision.

He observed that a good business often thrived on stable macroeconomic environment and that was what the macro-framework accompanying the 2017 budget intended to do.

He said a recent experience had shown that an inflation surge was difficult and costly, therefore there was a need to develop a culture that truly placed premium on price and macro-stability.

“The 2017 macro-framework focused on unwinding the large economic imbalances to restore stability and these include the fiscal consolidation measures constraining expenditures which are in line with mobilised revenues and re-profiling short-term debt to long-term instrument to create fiscal space,” he said.

Complementary monitory policy management

Consequently, he stated that the central bank had adopted complementary monitory policy management strategies to help lower inflation and ensure exchange rate stability.

The policies have started gaining roots, with inflation falling from 15.4 per cent at the end of 2016 to 12.2 per cent in September 2017 which led to the Monitory Policy Committee of BoG bringing down the policy rate by about 440 basis points with lending rate also coming down by 200 basis points.

In addition, Dr Addison said there has been relative stability on the foreign exchange market with the local currency depreciating against the US dollar by 4.3 per cent since the beginning of the year compared to the same period average of about 17 per cent in the last three years.

He explained that the economic growth was gradually rebounding supported by significant improvement in electricity supply, higher crude oil production and some government initiative targeted at boosting agriculture and manufacturing activities.

According to him, in the second quarter of 2017, real gross domestic product (GDP) growth was estimated to have grown by nine per cent compared with the paltry 1.1 per cent recorded in the period of 2016 and it is projected to reach 6.5 per cent by the end of this year.

He observed that that turnaround in macro-fundamentals as well as measures being taken to ease the burden of non-performing loans in the banking sector had seen some rebound in private sector credit allocation.

A Bank of Ghana credit survey conducted in August this year for example showed an ease on credit stance on loans to enterprises and households together with an increased demand for credit by enterprises.

The governor said the ease in credit condition was broadly in line with an observed gradual decline in average lending rate over the period.

The lending rate of banks declined to 29.7 per cent in August from 31.68 per cent in December 2016. The deposit rate has also moved to 14.5 per cent over the same comparative period, as a result interest rate spread declined by 343 basis points to 15.2 basis points in August this year.

Businesses mount pressure

With these positives, the banks are supposed to react to these macroeconomic indicators to drop their interest rates, a move which is expected to bring some relief to their customers.

But, the President of the AGI, Mr James Asare Adjei, said the stability achieved so far was taking too long to translate into the expected reduction in lending rates in the country.

He observed that the response to the improvement in the macroeconomic environment had been very slow and needed to be addressed immediately.

He urged the central bank to re-examine the economic fundamentals to ensure that the economic stability translated into lower interest rates early enough for businesses to grow.

“Indeed, the business community acknowledges the relative stability in the macroeconomic environment throughout the year and greatly commend the government for the accomplishment, yet we need to expedite action for it to translate into a reduction in lending rates,” he added.
Source: Daily Graphic

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