AGI 'not amused' with static policy rate

The Association of Ghana Industries (AGI) has expressed disappointment in the Bank of Ghana’s decision to maintain its policy rate at 26 percent for the fourth consecutive time, arguing, it will not provide any respite for businesses.

The Monetary Policy Committee of the central bank, last week, announced that it has maintained the policy rate at 26 percent, citing the recent drop in inflation which currently stands at 18.4 percent.

In an interview with the B&FT, AGI president, James Asare-Adjei, said his outfit was not happy with the decision of the central bank, saying, the current economic indicators make room for the MPC to reduce the policy rate.“AGI was really not amused at all when the policy rate was maintained.

It has been maintained for four consecutive times and we think that that is not the way to go. There has been some relative stability in the economy particularly in respect of depreciation and until quite recently the energy situation was somehow improved. So in light of these developments we expected the policy rate to be reduced,”

Mr. Asare-Adjei said.He added that businesses are reeling under so much pressure, owing to high utility cost—particularly electricity tariffs—and the high cost of doing business, hence, the need for a reduction in the policy rate to reduce cost of credit in the country for businesses.“

Businesses are suffocating under huge cost of credit and so if you maintain the policy rate, what have you done differently? You are basically singing the same song, but we want to see very strategic and more radical approach in helping businesses survive,” he said.“

The policy rate feeds into cost of credit and we know cost of credit is too high in this country, making local businesses very uncompetitive.

So if we continue to maintain this high policy rate it will be worrying to businesses. So where there is some seeming stability in the economy, the central bank should also follow suit by reducing the policy rate to give some respite to businesses,” Mr. Asare Adjei said.

Meanwhile, Governor of the Bank of Ghana, Dr. Abdul Nashiru Issahaku has vehemently defended the decision to maintain the policy rate at 26 percent.Speaking to journalists on Monday following the announcement, Dr. Issahaku said it is premature to reduce the policy rate taking into consideration inflationary pressures.“In assessing the current economic conditions, the Committee views the risks to inflation and growth as balanced and decided to maintain the policy rate at 26 percent.

The Committee remains committed to its price stability mandate and will continue to monitor developments in the economy and take further policy actions, if necessary.

As I mentioned earlier, the inflation path and time horizon has moved outward and with this we cannot at any rate be reducing the policy rate,” he said.

The central bank’s latest consumer sentiment survey, conducted in June, reflects a marginal surge in inflation expectations based on the “unanticipated increase in petroleum prices and the recurring energy supply challenges.”

The Bank of Ghana has consistently maintained a tight monetary policy stance with the goal of bringing down inflation which has remained highly erratic over the past 12 months.

At its previous meeting in May, the MPC had voted to maintain the policy rate at 26 percent; in that month, however, the inflation rate raced to 18.9 percent.

The following month, inflation dipped marginally to 18.4 percent which further gave the central bank room to keep the policy rate at 26 percent.