High interest rates in Ghana only enrich the Bank of Ghana (BoG) and the commercial banks that are operating in the country, an investment banker, Togbe Afede XIV, has said.
Togbe Afede is against the increasing interest rate because, in his view, it is crowding out the private sector and also inhibiting job creation.
Speaking to journalists on the sidelines of the launch of the 53rd General Assembly of the World Trade Centres Association, on Thursday, February 9, the former Council of State member said “get inflation down, get the interest rate down and the cedi will maintain good stability against the dollar. Just keeping interest rates high will not tame inflation. Why do I say so? In advanced countries, you raise interest rates to discourage spending, therefore, reducing demands for goods and therefore to tame pricing.
“But in Ghana where the average person can hardly make ends meet, you don’t expect that when you increase interest rates they will cut back on spending and save more. It just doesn’t work like that in this country.”
He added “when you raise the interest rate it only rewards the banks, that is why the Ghanaian banking sector is about the most profitable in Africa, that is why the Bank of Ghana itself made about four times as much profit as the Bank of England. Bank of England presides over a 2.7 trillion economy, forty times our 70 billion economy.
“How can the Bank of Ghana make more profit than the Bank of England? They also profit from the high-interest rate so the high-interest rate does not benefit the economy, it benefits the banking system, making the Bank of Ghana profitable, making the banks very profitable, crowding out the private sector, inhibiting private sector growth, inhibiting the growth of the real sector of the economy, therefore inhibiting the creation of jobs for the teeming masses of the people.”
The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) recently increased the policy rate to 28 percent.
This was up from the earlier rate of 27%.
This was announced by the governor of the BoG at the 110th MPC Press conference in Accra on Monday, January 30.
The upward adjustment reflects the increasing rate of inflation which hit a record high of 54.1% in December last year.
“In the interim, the MPC sees the need to remain vigilant and moderate liquidity in the system to underpin macroeconomic adjustments taking place to drive inflation on a downward path.
“Under the circumstances, the Committee decided to increase the policy rate by 100 basis points to 28%”, the MPC chaired by the Governor of the Bank of Ghana, Dr. Ernest Addison revealed.