Ghana National Chamber of Commerce urges 2% policy rate reduction for business resilience
The Ghana National Chamber of Commerce and Industry (GNCCI) is advocating for a reduction in the policy rate by the Bank of Ghana to bolster business growth amidst rising borrowing costs. The call comes as the Monetary Policy Committee (MPC) is in session to evaluate economic developments, with an announcement on the policy rate expected by January 29, 2024.
In a statement, the GNCCI highlighted the mounting challenges faced by Ghanaian businesses due to elevated borrowing costs, primarily driven by the high Monetary Policy rate. The statement emphasized the adverse impact of the 32.0% average interest on commercial loans in 2023, coupled with high utility tariffs and excessive taxes, creating an exorbitantly expensive business environment in Ghana.
The GNCCI underscored the repercussions of this costly business environment, citing a substantial decline in production, business closures, increased non-performing loans, business relocations to other African countries, and an overall significant downturn in private sector and economic growth. Notably, Ghana’s GDP growth rate plummeted from 6.1% in the 4th quarter of 2021 to 2.0% in the 3rd quarter of 2023.
As the representative body for the business community, the GNCCI urged the MPC to consider the cost-push impact of a high policy rate. It proposed that the Bank of Ghana lower the existing policy rate, citing the relative stability in the forex market and a 30.4% decline in domestic inflation from 53.6% in January 2023 to 23.2%.
The GNCCI argued that a reduced policy rate would prompt commercial banks to lower their lending rates, facilitating businesses’ access to funds for expansion in the short to medium term. Given Ghana’s interest rate being the highest in Africa, the chamber recommended a reduction of not less than 2 percent or 200 basis points in the policy rate.
“As Ghanaian businesses endeavor to actively engage in the AfCFTA, the cost of borrowing will play a crucial role in defining their competitiveness. With Ghana’s interest rate being the highest in Africa, we urge the Monetary Policy Committee to lower the policy rate. In the chamber’s estimation, anchored on the stability in the forex market, decline in inflation and the projected GDP growth rate of 2.7%, we propose a reduction of not less than 2 percent or 200 basis points in the policy rate for the start”, said the GNCCI.
