Ghana Needs To Move Beyond Macro-Economic Stability

Mr. Kwesi Amissah-Arthur, Governor of the Bank of Ghana (BOG), yesterday said Ghana's recent macro-economic stability and subsequent reduction in the policy rate are necessary for rebound in private sector activities.

He said the move is however not sufficient, stressing: "It is important to move a step beyond the creation of a favourable macro-economic environment and take proactive supportive measures such as improving the infrastructural base of the economy to promote private sector growth."

He was speaking at a seminar organised for chief executives of the Ghana Employers Association to share thoughts on the topic: "Reduction in the Policy Rate and its Implications for Private Sector Growth," in Accra.

Mr. Amissah-Arthur said improvement in macro-economic conditions and the gradual easing of interest rates were likely to generate a rebound in private sector credit in 2010.

"Already, we are beginning to see signs of growth at the margin. The annual growth rate of credit of the banking system increased from 16.1 per cent in December 2009 to 16.5 per cent in January 2010."

Mr. Amissah-Arthur observed that the banks have started reducing their base rates in response to the easing monetary policy stance.

He said despite the fall in base rates, average lending rates of the banks have declined from 37 per cent to 32 per cent.

He expressed dissatisfaction about the prescription of some of the participants about the maximum margins on lending and deposit rates within which banks can set their rates, saying the suggestion is a short-term measure that will not lead to the lowering of lending rates in a sustainable manner.

"Unlike fiscal policy which impacts directly to stimulate an economy, monetary policy works indirectly and with a lag. It is for this reason that the bank is working systematically to create a framework that establishes sustainable low interest rates in the economy," he said.

Mr. Amissah-Arthur said the development of Ghana's capital market must expand opportunities for the private sector to mobilise long-term finance for their businesses.

Mr. Amissah-Arthur called for deepening of measures to enhance transparency and full disclosure of bank lending rates, in order for the borrowing public to make informed choices.

"The annual percentage rate provides the true cost of credit and the publication of these rates in the print media is one of such instruments. These together with the central bank's efforts at anchoring inflation expectations in the economy will eventually reduce bank lending rates in line with other rates."

Mr. Amissah-Arthur called for improvement in the governance, management and performance of Ghanaian companies to strengthen the financial sector for the long-term growth of the economy.

He gave the assurance that BOG will continue to pursue policies that will promote price stability as well as create efficient and competitive banking sector to deepen financial intermediation at reduced costs.

Source: GNA