Economist cautions against prime rate cut
By Isaac AIDOO, Accra
Assistant Professor of Economics at the Niagara University. in New York, USA and member of the Research Committee of Tesah Capital, Dr Dennis Nsafoah has urged the Bank of Ghana (BoG) to be cautious in reducing the prime rate as inflation remains elevated .
As Governor of the Central Bank and Chairman of the Monetary Policy Committee (MPC) is set to announce the Committee’s decision at a press briefing in Accra, Dr Nsafoah admonished Ghana’s banking regulator to take a cue from happenings in the US and Great Britain.
He pointed, saying, “it is widely accepted that the Bank of Ghana has concluded its cycle of increasing the policy rate. However, I urge the MPC to adopt a cautious approach in reducing the policy rate. “
According tothe economist, his caution was warranted because inflation remains high and sticky.
“Even leading central banks worldwide, including the U.S. Federal Reserve and the Bank of England, which have successfully brought inflation near their targets, are proceeding carefully with their easing cycles; notably, both institutions chose to keep their policy rates unchanged this week, despite acknowledging a restrictive monetary policy, particularly in the U.S., “ Dr Nsafoah submitted.
He argued that “given these central banks’ reluctance to lower their rates, a significant cut by the MPC could lead to further weakening of the Ghanaian cedi, which has recently become more volatile.”
The economics professor further appealed to businesses to be more patient with the Bank of Ghana so it is able to achieve its inflation expectations which will in itself serve to better improve business activity.
Business associations such as the AGI and the Chamber of Industry, have consistently urged the BoG to cut the benchmark interest rate, to help reduce lending rates so they can borrow at reasonable rate and expand their businesses.
The AGI recently appealed to government to work with the Bank of Ghana to reduce inflation and interest rates, arguing that the business environment must be made conducive to prevent more firms from relocating to neighbouring countries.
But Dr Nsafoah urged, “I understand that a high policy rate adversely affects households and businesses by increasing borrowing costs. Nonetheless, I implore Ghanaian businesses, especially those within the Association of Ghana Industries (AGI), to exhibit more patience with the Bank of Ghana as it navigates through this period of high inflation.”
He added that, “if the Bank of Ghana can return inflation to its target within the projected timeframe, the short-term pain of high interest rates will be outweighed by the long-term benefits of price stability. This stability promises sustainable lower interest rates, which is beneficial for all.”
